Hidden fee OFT probe on credit card transfers

A consumer watchdog is investigating charges made for switching to interest-free credit cards as it emerged UK-based banks are waiving the same fees for overseas customers.

Consumers have inundated the Office of Fair Trading with complaints about the handling fees which are being seen as another example of "rip off Britain". They have become commonplace across the vast majority of credit card companies since first introduced in the UK two years ago.

British banks with an American presence such as the Royal Bank of Scotland and HSBC currently impose the charges to their British customers seeking introductory interest free deals but not those on the other side of the Atlantic.

An estimated eight million people in Britain transfer £6.5bn between cards despite the imposition of handling fees which are typically 2.1% of the amount of the balance transfer.

Recent research suggests it is Scots who suffer most from the charges as they transfer the highest amounts as prolific credit card switchers. One in four Scots switch to cheaper cards each year and transfer the highest amounts of debt in Britain.

The OFT is looking into complaints that banks are luring customers with promises of limited period interest free credit on purchases and balance transfers if they switch credit cards while imposing unfair "hidden" handling fees discovered only in the small print.

It will also examine the justification for the charges which, according to Herald research, can vary from zero to £150 between different financial institutions on a balance transfer of £5000.

Consumer groups have complained that the fees are merely another money making ploy and that they do not reflect the administrative cost of conducting the transfer. Banks say that the charge is imposed to try and claw back the cost of offering interest free deals and deny the charge is hidden.

One of the only credit cards that does not impose a handling fee to British credit card customers is the Ulster Bank, which is part of the RBS group.

Herald research of the major high street banks and credit card companies shows that HBOS imposes the highest handling charge on its credit cards at 3% of the balance.

Martyn Evans, director of the Scottish Consumer Council, said: "If there is a cost of transferring a balance it should be related to the cost of the work involved and should not be another way of taking money out of consumers' pockets."

Peter French, of the Independent Banking Advisory Service watchdog, said: "The customer does not want a nasty aftertaste from something that should be simple, transparent and free, especially when it is advertised as something that appears to be free."

Sandra Quinn of Apacs, the UK trade association for institutions that deliver payment services, said: "Credit card companies are not charities, they levy fees like any other business levies fees."