Which credit cards charge dormancy fees?

Will I have to pay a dormancy fee if I don't use my credit card enough and how much will it be?

Dormancy fees, a nefarious charge that punishes cardholders for not using their cards, are relatively rare at the moment.

Most mainstream credit card providers no longer levy fees to customers who don't use their cards, or use them very infrequently, although the practice was widespread a few years ago, as you can see in the next section.

Having said that, however, dormancy fees are still well worth looking out for.

Santander issued store cards including Topshop and Debenhams cards still charge consumers for not making the most of their services, for example.

To double check any card's dormancy fees look in the summary box of any credit or store card under the main 'Charges' section.

Why charge dormancy fees?

Card companies claim that they issue dormancy fees to claw back some of the admin costs incurred when maintaining the account of an inactive credit card.

However, a spate of dormancy fees issued in 2007 (see below) coincided not at all coincidentally with a £12 cap on the amount that credit card companies could charge by way of fees imposed by regulators.

Prior to this many card issuers had been charging two or three times this amount.

The fee cap resulted in huge financial losses for credit card companies, and left many card issuers looking for other ways of making up for this lost revenue.

As a result, we saw interest rates, cash transaction charges and annual fees increased, the type of transactions that can be construed as cash transactions widened, and, of course, charging dormancy fees to customers that failed to use their credit cards regularly.

According to David Black of financial research firm Defaqto, "A mix of bad debt write-offs from customers, fraud, and costs of running empty accounts means margins are being squeezed for many card providers. Introducing dormancy fees is a way to cover this."

As we'll cover below, dormancy fees have since mostly been withdrawn but the reaction from financial services providers - finding alternative ways to increase charges as regulators attempt to cut costs for consumers - has since started repeating itself in the current account market.

Dormancy fees: then and now

Then

In 2007, Lloyds TSB were one of the first credit card providers to write to customers in 2007 informing them that low usage would incur charges.

The bank imposed a £35 dormancy fee across their entire range of credit cards, although it has since removed the fee.

Later on in 2007 Barclaycard deals imposed a similar charge.

Cardholders who'd not used their credit card in a one year period were likely to be charged the £20 fee, although the provider also imposed specified minimum spending and usage limits on their customers.

It is thought that around one million Barclaycard customers were affected by the new charge and that Barclaycard managed to net an extra twenty million pounds as a result of the change.

A spokesperson from Barclaycard said at the time: "We will do everything we can to improve the deal we give people, encourage them to use our card, not someone else's and avoid fees."

A £20 fee represents less than £2 a month, Barclaycard pointed out, although they also later cut the fee.

Similarly, Santander's own credit card range now no longer sports a dormancy fee in the summary box despite a brief flirtation with the idea.

Some American Express credit cards also introduced a £20 dormancy fee for customers who didn't spend on one of its cards for 12 months or more in October 2009.

The charge was levied, "if the aggregate amount of all transactions [on the account], other than cash advances & balance transfers, that have taken place during the preceding 12 months is £0."

However, Amex also subsequently withdrew the fee.

Now

Unless cardholders are notified otherwise, the credit card terms which apply to them are set out in the terms and conditions document they sign when they take the card.

For that reason, the above dormancy fees may still apply to some credit cardholders.

As always, checking the small print is essential in these situations: it's the only way to know definitively whether a dormancy fee will be charged on an inactive account.

However, for those signing up to a new card now only Santander issued store cards still charge a dormancy fee of £10.

The charge, which was introduced in December 2010 applies to all store cards supplied by the Spanish owned bank. That includes, but is not necessarily limited to the following, store cards from the following shops:

• Burton
• Debenhams
• Dorothy Perkins
• Evans
• House of Frasier
• Laura Ashley
• Miss Selfridge
• Monsoon
• Outfit
• Russell & Bromley
• Topshop/Topman
• Wallis

The fee is charged if the cardholder doesn't use their card within a six month period.

However, Santander should always give cardholders 30 days notice before charging a dormancy fee. At that point cardholders could choose to use the card or close the account to avoid the £10 fee, Santander say.

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