Store Cards Must Post Warning

24 May 2007

Store cards have always been considered a forbidden fruit within the personal finance industry. Even though they are easy to obtain, convenient, and come with many built in discounts, they often leave some consumers with a feeling of being taken for a ride. Their annual percentage rates (APRs) that are often as high as 29.9 per cent can override any real savings if left unpaid for too long.

In spite of recent regulatory action that has forced store card providers that charge APRs of more than 25 per cent to inform customers that cheaper rates may be available elsewhere, other retailers have increased their rates. Holders of John Lewis store cards are one of the latest to face an increase in interest rates when the provider raised the APR from 15.5 to 16.9 recently. The rate for cash advances was increased to 18.9 per cent. John Lewis also owns Waitrose supermarkets as well as London's Peter Jones Department Store. He defends his position on the 1.4 percentage point hike in the APR, saying that it is due to the three rises in the base rate since August.

Industry experts are still critical even though John Lewis store cards are cheaper than some. They see the last round of APR increases serving as another blow to the consumers, according to Richard Brown of Moneynet.

While there are a few cards that offer favourable rates such as Ikea Home at 12.9 per cent, some of the larger high-street stores charge over five times the Bank of England's base rate of 5.25 per cent. For Example, Burton, Laura Ashley, Topshop, and Miss Selfridge all have an APR of 28 per cent, while the Toys R Us EasyBuy Edge card charges 29.9 per cent at the time this article was written.

Mr. Brown goes on to state that store cards have prohibitively expensive terms, and though they may be convenient, shoppers should never use them to carry debt from one month to another.

Smart shoppers who are aware of the high rates stores charge on these cards don't use them for borrowing. Instead, they sign up in order to take advantage of the discounts and immediately pay their debt in full. After that, consumers should either cut the cards in half or put them away unused in case other discount offers become available in the future.

Mr. Brown recommends an arranged overdraft or using one of the cheap 0 per cent introductory-rate credit cards for borrowing money. Other consumer agencies have stated that the cards are often an unnecessary and a prohibitively expensive way to borrow, thus advises consumers to avoid using them.