The Office of Fair Trading has discovered that European credit card companies are using accounting policies and imposing charges on customers described by the regulator as being of "questionable validity," a Treasury-select committee of MPs said last week. The regulatory body has found that some companies appear to be undertaking practices that breach terms in consumer contracts.

The Office of Fair Trading is consulting issuers, including MBNA Corp., Barclays Bank plc, HSBC and The Royal Bank of Scotland, regarding late fees and credit limit surcharges. It believes these charges are disproportionately high, and need to be reduced in order to be fair. In the past, credit card companies have been reluctant to disclose such charges, said market sources.

RBS analysts said that U.K. credit-card portfolio yields may decline as a result. "We believe this will pressure excess spread further, especially when combined with the reduction to interchange charges already underway," RBS analysts reported. "We estimate excess spread may fall by around 1% for the average portfolio - excluding interchange effects - assuming fees account for approximately 10% to 15% of portfolio yield, fees halve to around GBP10 ($17.50) and other charges remain constant."

The Office of Fair Trading has already reshaped several aspects of fees charged by credit card companies. In 2003 the regulator began looking into interchange fees charged by U.K. credit card issuers and in 2004 it also investigated the lack of transparency and conformity in the annual-percentage rate quoted by credit card issuers.

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