Interest free but not transfer-free; the £240 million cost of switching credit cards

UK credit card holders paid a staggering £240 million in 'transfer fees' switching their balances to interest-free deals last year, prompting the threat of an investigation by the Office of Fair Trading. Used as a debt management tool by consumers colloquially known as 'rate tarts', switching credit card balances now attracts transfer fees of up to 3% of the transferred amount.

Many customers were unaware of the transfer charge until it appeared upon their statement, and that has led to complaints. There are up to 150 different UK credit cards currently offering zero-interest balance transfers, but almost all charge transfer fees ranging up to 3%. That means that someone transferring a balance of £10,000 would have to pay a fee of £300. A spokesman for the British Bankers Association defended the actions of the credit card companies by claiming that the fees are levied to cover the transfer of direct debits and checking credit history. However, if that is the case it is unclear why the transfer fees are percentage related when the actual administration costs must surely be the same for each customer. That effectively means that people who transfer higher balances are either subsidising those who transfer less, or providing more income to the credit card companies.

Ironically, the balance transfer fees were introduced by the credit card companies following an OFT crackdown on late penalty fees, forcing them to look for an alternative income. Research carried out by Moneyexpert.com found that 12 million people had switched credit cards last year incurring an average fee of £19.99.

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