'Rip off' store cards condemned
'Rip off' store cards condemned
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Tuesday, 07, Mar 2006 10:38
Consumers who use purchase credit or insurance on store cards could be paying up to 20 per cent more interest than they need to, a government-backed watchdog has warned.
According to a new report by the Competition Commission, the annual percentage rates (APRs) charged by store cards averaged 26.5 per cent last year.
The watchdog suggested that this was between ten and 20 per cent too high, meaning that consumers pay out up to 55 million a year in unnecessary interest payments every year.
This overcharging has been put down to a lack of transparency by store card providers, with the commission calling for all cards which charge APRs of 25 per cent or more to carry a warning on monthly statements informing consumers that cheaper deals may be available elsewhere.
Christopher Clarke, deputy chairman of the Competition Commission, believes that greater regulation of store cards is long overdue.
"Retailers and store card credit providers are, we have found, effectively insulated from competitive pressures. The consequence is that store cardholders who take up credit and associated insurance pay too much," he said.
"Many store card programmes have APRs clustered around 30 per cent and we have found that there has been little competitive pressure to reduce them.
"Even though lower APRs have recently been, or are being, introduced for some store card programmes, even by the end of 2006 more than 90 per cent of store card accounts are projected to continue to pay APRs of more than 25 per cent."
He added: "To encourage greater competition in this important market and bring pressure to bear on APRs and the terms for insurance, we are imposing a number of remedial measures."
As well as providing credit warnings for cardholders, the commission will also require card providers to display more prominent information detailing the APR and the level of fees and charges clearly on all monthly statements as well as enabling cardholders to pay their account balance by direct debit.
The report also called for cardholders to be offered payment protection insurance when being sold store cards.
Card providers have responded cautiously to the findings, with the Finance and Leasing Association (FLA), which represents all major store card providers, vowing to look in detail at the findings.
"We will look closely at the report with our members to see how the industry can best implement the commission's remedies to enhance transparency and facilitate consumer choice," said Ashley Holmes, head of legal affairs at the FLA.
He added that the industry had already taken steps to reduce APRs and improve transparency with regard to store cards.
"We are now seeing lower store card APRs, even greater choice with the move to store branded credit cards and greater consumer transparency," he said.
"New consumer credit and insurance rules and industry initiatives all mean that consumers now have greater protection when taking out store cards."
The commission estimates that there are currently more than 11 million store cardholders in the UK with outstanding balances in excess of 2 billion.