Store Cards Get Government Wealth Warning

Wednesday, March 08, 2006

UK store cards charging more than 25% interest will come with a “government wealth warning”, after an investigation by the Competition Commission (CC).

The CC has decided that store card credit lenders are setting annual percentage rates (APRs) that are excessive given their costs, and are overcharging store card borrowers in the UK by at least £55 million a year!

Two years ago, the Office of Fair Trading first asked the CC to look at the issues surrounding store card credit, and practices employed by the 70 different high street retailers offering credit in the UK.

Since then, the average store card APR has fallen significantly to a level of 26.5%. Nonetheless, the CC has determined that that the credit companies are over-charging borrowers by 20-30% above what might be considered as appropriate to cover their lending expenses and return a reasonable profit.

The CC also found significant numbers of store card lenders who were charging an APR of 30%, compared with standard credit card interest rates of 26% or less per annum.

The CC made a preliminary report in September 2005, which described the interest charges on store cards as “inflated” due to a lack of competitive pressure.

Now the CC has told store card lenders they have to:

Inform borrowers that they may be able to obtain cheaper credit elsewhere, if their APR is higher than 25%.
Provide more detailed monthly statements.
Allow consumers to pay by direct debit.
Separate payment protection insurance from other types of card insurance.

The UK Consumer’s Association Which? welcomed the move to add warnings on monthly credit card statements, but went further advising consumers to avoid store credit cards “at all costs”. They pointed out that cheap-rate credit cards are available with an average APR of 15% - making store cards an expensive way to borrow money.