Store Cards Discredited

High rate store cards savaged for ripping off shoppers by not revealing true charges

By Ruki Sayid, Consumer Editor
 
CONSUMER groups were celebrating yesterday as an investigation was launched into an alleged monopoly on store cards charging sky-high interest rates.

Claire Whyley, of the National Consumer Council, said: "Retailers and store card suppliers have been getting away with overcharging and failing to provide customers with clear information for far too long."

The Office of Fair Trading yesterday asked the Competition Commission to intervene after its own probe found the way the cards are run appeared to "prevent, restrict or distort competition".

It condemned High Street chains for using confusing jargon and failing to tell customers how their rates - of almost 30 per cent - compared with other plastic.

The watchdog also blasted shops for high pressure sales tactics saying most customers were not allowed to take application forms away to read them properly.

And it was unhappy that in one out of three cases there was no information at all on what interest rate was being charged.

Its study also revealed 40 per cent of consumers felt the information on application forms was inadequate.

About 30 per cent of adults have store accounts - more than 20 million cards - but are mostly unaware of the interest rates.

While John Lewis charges 13 per cent annual percentage rate (APR), Bhs, Ikea, Habitat and Mothercare shoppers pay 29 per cent - 0.1 per cent more than Harrods and 10.1 per cent above Marks and Spencer.

Creation Account cards - which covers stores including Adams, Carphone Warehouse, JJB, Miss Selfridge and Wallis - almost tops the league with an APR of 30.9 per cent.

Debenhams has an APR of 29.9 per cent and Allders 29.8 per cent.

Consumer groups have welcomed the OFT's tough stance and urged store card providers to "put their house in order".

Phil Evans of the Consumer Association condemned providers for a "lack of discipline". He said: "The market doesn't function in the best interests of consumers.

"Rates have stuck at an average of 28 per cent for the past few years and seem to be immune from competition within the wider market for credit."

Vince Cable, the Liberal Democrat Treasury spokesman, said: "Store cards are among the worst offenders in the whole credit industry. The high level of consumer confusion ensures high profits for providers.

"If we are to have genuine competition in this industry, we must make the way store cards and credit cards work genuinely transparent." Remedies open to the Competition Commission include introducing price caps or making it easier for new entrants to join the market.

The OFT began its probe after being taken to task by a committee of MPs in July for failing to do enough to protect consumers.

The Treasury Select Committee accused companies which offer store cards of "highway robbery" and of "running a cosy cartel" by charging broadly similar rates.

The watchdog has now pledged a campaign to educate the public on the dangers of store card debt and how to avoid the pitfalls, including looking at other forms of credit available and checking the interest rate.

GE Consumer Finance (UK), which operates store cards for Debenhams, House of Fraser and Arcadia - whose brands include Topshop, Miss Selfridge and Dorothy Perkins - said it was already taking measures to increase transparency.

Marketing director Najlaa Taqui-Eddin said: "We introduced a summary box in November giving details of a card's interest rates and charges.

"And we offer customers 60 days to walk away from a deal they have signed."

The company is responsible for half the store cards in circulation and has an average APR of 27 per cent.