Store Cards Rip-Off

MONDAY, DECEMBER 19, 2005

Store cards are a rip-off - and apparently it’s official. According to the Competition Commission (CC), UK store card customers are being overcharged to the tune of some £ 100 million each year.

There are about 70 groups in the UK offering store cards for use in the major department stores and high street chains, in a market worth £ 2.5 billion. The majority of lenders are offering interest rates close to 30%, far in excess of those charged for bank loans and credit cards. That doesn’t seem to put off would-be applicants though, with some 14 million of us owning store cards in the UK, with a total debt of around £ 2.5 billion. Nearly 60% of owners don’t clear their card debt at the end of the month, leaving them liable to exorbitant interest rates.

The consumer watchword has launched an extensive inquiry into the industry. They found evidence of excessive charging with high interest rates or insurance fees; encouraged by a lack of competition in the sector. The CC claimed that store card APRs (annual percentage rates) were 10% to 20% higher than they needed to be, when considering their actual costs.

The CC claimed that their inquiry had already prompted many lenders to reduce their APRs, but wanted creditors to do more to protect UK consumers, who have enough debt problems as it is. The CC called for more transparency in the industry, clearer APR notices on credit statements, and for more incentives to allow retailers to negotiate lower APRs.

The CC is also mulling whether or not to ask creditors to increase awareness of direct debit as an option to debtors, who might otherwise get into difficulty making their card repayments on time.

Broadly though, the CC found that store card owners in the UK were paying more to finance their debt than they would be if the market were genuinely competitive.