Crackdown on rip-off store cards

Sean Poulter, Daily Mail
7 March 2006

A Crackdown on store cards - which overcharge shoppers by £100m a year - is unveiled today. The Competition Commission will force companies whose cards charge more than 25% to provide warnings to customers. The move comes after the Commission found finance giants and retailers guilty of making 'excess profits' on the cards. Industry experts believe the decision could see some retailers scrap their store cards.

Many of the cards charge close to 30% interest, which provides a huge profit margin when compared with the Bank of England base interest rate of 4.5%. At the same time, customers are hit by penalty charges for missed or late payments which average £15 a time. Currently, cards from Laura Ashley, Top Shop, Dorothy Perkins, Burton, Evans, Russell & Bromley, Bhs and House of Fraser charge more than 25 per cent. Ordinary credit cards commonly charge between 15 and 20%.

The new rules will mean:
- Monthly statements issued with cards charging more than 25% will have to carry a warning advising customers that there are cheaper ways to borrow.

- An 'honesty box' will be required on the front of monthly statements spelling out the interest rate and penalty charges.

- A warning on statements outlining the consequences, in terms of high interest charges, of making only the minimum required repayment.

- A ban on the sale of Payment Protection Insurance as a package with the cards. PPI, which is supposed to pay out in times of crisis, such as illness or unemployment, is generally extremely expensive. The Commission believes it should be sold as a separate product.

The government watchdog hopes its measures will shame companies responsible for the most expensive cards into cutting their rates. It also believes shoppers may cut up cards which impose the highest rates. There are some 23.1m store cards in circulation, which account for spending of around £5.4bn and currently carry a balance of some £2.84bn.

Last September, the Commission estimated that consumers were being overcharged by £100m a year on the cards. They are run by a number of finance companies, led by the American giant GE Consumer Finance. The spoils are shared between the finance companies and the stores who offer them. Some of these deals trigger extra payments for the retailer if customer debt levels increase and hit certain key thresholds. The high levels of interest charged on the cards has been likened to highway robbery by consumer groups and MPs. The Labour chairman of the House of Commons Treasury Select Committee, John McFall, has led calls for action. He said shoppers are put under enormous pressure to take out the cards by shop staff, while there has been a lack of clear information about interest rates and charges. He accused retailers of putting profit before customers. 'If you buy a suit from one of the stores then you would expect the retailer to ensure that it was well made and reasonably priced,' he added. 'These principles do not seem to apply to their store cards.' The consumer group Which? said: 'Store cards are an unnecessary and extremely expensive way to borrow.' The National Consumer Council said: 'In reality these cards are the next worst thing to a loan shark if you judge them on the interest rates.' The Finance & Leasing Association, which speaks for store card providers, said there are good reasons for high rates. A spokesman said: 'We are very concerned about these proposals. Currently, interest rates are based on risk. That means store cards can be offered to people who might be considered a credit risk.' The FLA said there is a possibility that the store card will be killed off as retailers shift to branded credit cards. He said there were many benefits to a store card. 'There are introductory discounts, extra money off during sales, invitations to special events and access to catalogues,' he said.

How the cards make you pay (source: GE Consumer Finance):
Laura Ashley 29.9% - Russell & Bromley 29.9% - Topshop 29.9% - Dorothy Perkins 29.9% - Burton 29.9% - Evans 29.9% - House of Fraser 29.3% - Bhs 29% - Harrods 28.9% - Mothercare 19.9% - Monsoon 18.9% - Debenhams 18.9% - River Island 17.9%

OFT warns of credit card cheque costs

Consumers who use credit card cheques could be paying up to £57m too much in fees and hidden interest charges, the Office of Fair Trading warned yesterday as it called for new laws.

The consumer enforcement agency demanded legislation to force credit card groups to set out "consistent, clear and timely" information about the full cost of using such cheques.

Credit card health warning

Credit card statements would come with health warnings under a radical plan to save consumers from Australia's $34 billion debt trap.

The warnings would detail the ultimate cost and time of paying off the credit card debt in minimum monthly repayments.

Banks and other lenders would be forced to print the warnings on the bottom of monthly statements as part of an overhaul of the state's credit laws.

The Consumer Credit Review also recommended reining in the predatory tactics of lenders by banning unsolicited credit card limit increases.

The State Government review put the credit industry under the microscope amid fears many Victorians were drowning in debt.

The review also called for:

A BAN on lenders taking a borrower's household goods as security for a loan.

A SYSTEM for consumers to dispute unreasonable fees.

STRICTER guidelines for the registration of credit card providers.

THE introduction of approved alternative dispute resolution services by all lenders.

STRONGER government power to prosecute dodgy credit providers.

MORE protection for reverse mortgage customers.

Consumer Affairs Minister Marsha Thomson said it was vital the state had effective controls, with national debt hitting $34.2 billion last year.

It also called for thorough assessments by lenders of their customers' abilities to pay credit card bills.

Consumer law groups yesterday welcomed the report.

But Australian Bankers Association director Ian Gilbert said Australians were managing credit card debts well and he feared the health warning and credit limit ban would add another layer of regulation.