If your credit card imposes a penalty payment, don’t pay it: it’s not legally enforceable

That’s correct, you read it right. I felt a sort of roaring in my ears, no doubt from all the blood rushing around calculating how much I’ve paid in credit card penalties, as I read Don’t be afraid of throwing down the gauntlet to banks in the Guardian’s Saturday Jobs & Money supplement.

Here’s what Richard Colbey, a barrister (tr. for US readers: top-flight lawyer) wrote: Last month I wrote in Jobs & Money about the late payment charges made by most credit card companies. These typically involve the levying of around £25 on the account of someone who pays a day late, even if this is caused by the company’s late dispatch of the bill.

Such charges are unlikely to be enforced by the courts: penalty clauses are legally void unless they reflect the loss the party enforcing them has suffered.

Did you get that? All those penalty payments they put on you for late payment are bogus. Unenforceable.

But you’re thinking, come on, it must be in the contract. Colbey responds: This is hardly cutting edge law. None of the dozens of banks who issue UK cards, and who will lose out if people follow my advice not to pay them, has contacted Jobs & Money, or me, to take issue with what I wrote.

Over the years I have had a few of these penalties levied, and invariably when I have refused to pay I have been told that the charge would be “refunded” usually as “a good will gesture”. If banks thought this argument wrong, they would have taken a test case through the courts to establish their entitlement to the money.

Are you starting to follow? And then he makes the point that this applies too to those “unauthorised overdraft” charges your bank makes.

So why haven’t you heard about this? Simple – because when individuals act against the banks, they keep it quiet. Most people are cowed into paying the penalty because they think it’s enforceable. It just needs us all to refuse, and suddenly they’ll either have to take us all to court (great for customer relations) or do something else.

OK, so this is a rallying cry. Tell your friends. I’m starting today. No more penalty charge payments by me.


  1. God only knows why the Guardian buried this story in a fat Saturday supplement that only conscientious competitors read. I’d slam it on the front as a Sunday-for-Monday.

  2. What annoys me most about credit cards is that it is illegal (in UK) to advertise lower prices for items paid for by credit card than for by other means. Credit cards are in the vast majority of cases far more expensive to process than other payment means.

    Credit card rates are artifically high so they can provide marketing incentives, cash back, air miles and all the usual crap. The most marked difference is between credit cards and debit cards, credit cards fee is typically 3%, debit card fee is typically 15p. The retailer gets paid just the same. (Note there are other costs to accepting card payments, rental of equipment, telephone line and calls, stationery.)

    You’ve seen all those credit card adverts, guess why? – the banks make more profits from credit card payments than by other payment means. Oh and that extensive advertising is paid for by your use of credit cards too.

    Consumers should be informed, so they can make informed decisions.

    Considering making a purchase by credit card? ask for a discount, it is illegal to advertise different rates/prices but you can negotiate. Offer a debit card rather than a credit card and ask for 2.5% off. That in most cases is a win-win situation, retailer pays less, customer pays less.

  3. I hope Gandalf el Wizard will be pleased to learn that the Price Indications (Method of Payment) Regulations 1991 were introduced to allow retailers to display different prices applying to different methods of payment. (The Regulations actually dictate the conditions under which differential pricing is permissible.)

  4. Mark, thanks for the correction and link.

    I understand contracts with merchant service providers may prohibit discriminative pricing but presumably they would be unenforcable given the legislation.

    However my main point stands, there is scope for consumers and retailers to save money by choosing the more appropriate method of payment if they know how.

  5. Twice, over the years I have asked for late-payment fees to be refunded – and they were.
    I thought the banks were just being nice to me.
    But is a nice bank an oxymoron? If we all get refunds, won’t they just stick their charges up?
    Nevertheless, tell them to stick their fees up!

  6. I have managed to do this over the last two months, but trying to do so today I was met with the response: “You’ve had two credits back to your account this year, therefore we won’t be able to credit this months back.”

    So what can we refer to to ensure that we get our money back?

  7. Well, Sam, you could say that you’re going to take the case to the OFT and Which? and the Citizens’ Advice Bureau – though none of those is going to have a dramatic impact, because they’re been saying this for some time and the card companies ignore them.

    You have to pluck up your courage and take direct action. You ring them up again, explain (nicely, remember) that you’re not going to pay because the late payment charge is not enforceable, because they haven’t had to do anything: they haven’t sent out a separate letter, there’s no indication that you’re not going to pay the debt, and you are happy to pay the interest on the debt.

    Then if they spin the same line, you say: “In that case, I will have to close my account with you. I will also advise my company to move its account away from you. The choice is yours. You’ll earn more in interest from me in the next year if I stay with you than if you refuse to rescind this charge.” This should gain their attention.

    You do have to be determined, though. If you make the threat but don’t carry it through, you’re the loser in every way.

  8. I’ve recently received my statement from Barclaycard and though i’ve asked the account to be closed, they’ve ignored this so they can continue to with late payment and overlimit charges. This is about £40 each month and so far they’ve charge me over £300 in these charges alone.

    Recently a received a letter from Mercers Debt Ltd(subsidary to Barclaycard) giving me three options one was to only pay 80% of the charges,I realise this is because they realised these charges are “bogus”.I feel generally outraged.

  9. I read this on the BBC and I can only hope the credit card chages issue is addressed sooner rather than later. Credit cards can be a particularly nasty vehicle when a consumer ends up with too much debt and therefore subject to a raft of charges.

    Keep at it, Charles. :)

  10. due to marital circumstances i was unable to keep up my direct debit payments on a building society personal loan…i informed the buiding society of this,which they accepted.However,they continued to try to take the direct debit out of the account,which was now empty…and charged me for missed debits ..to a total of £350…how do i stand in relation to these charges???…..I am still repaying the original personal loan at a reduced rate through a debt collection agency..as agreed with the building society.Any advice would be welcome..Thanks

  11. Charles

    Sunday 18 February 2007 at 10:47 pm

    James, if the building society acknowledged your point, and you have a physical record (ie a letter) of it, then I think you have a good case for demanding these penalty payments back.

    Without the letter it’ll be hard, though if it was recent then the tape of your conversation might still be there.

  12. I have argued the toss with my credit card before when they kept stopping my online payments system so I did not get my monthly email about my statement, they did this 2 or 3 months in a row and kept telling me I had stopped it – why would I! But they did refund the late payment fee.

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