Store Cards Should Warn of High Interest Rates

According to the Competition Commission, store card statements should carry clear warnings alerting the customer to the high interest rate levied by that particular lender.

One suggestion is that the statement should carry a ‘wealth warning’ if the card’s interest rate is above 25%. UK credit card issuers have already been subjected to intense pressure from the Treasury Select Committee and consumer groups to display summary boxes, which display information such as the card’s APR and the next month’s estimated interest, on the first page of statements. It’s hoped that making such information clear and apparent to cardholders will enable them to control and plan their card debt more efficiently.

Like their credit card cousins, store card statements should outline late payment charges and the financial consequences of only making minimum monthly repayments.

In September of last year, the Commission announced that consumers in the UK are being overcharged by store cards to the tune of £100m a year due to inflated interest rates.

The Commission also concluded that the market for offering consumers credit through retail store cards was uncompetitive. As a result, consumers suffered through lack of choice resulting in sky-high interest rates. The Commission said that as retailers and lenders were almost immune from competitive pressures, they had little or no incentive to lower annual percentage rates (APRs) on store cards. Currently, the average APRs on store cards are around a whopping 30%.

This is in stark contrast to credit cards, which currently charge, on average, APRs of between 15% and 20%. It should also be taken into consideration that the Bank of England base rate is currently 4.5%

Since the Commissions provisional findings last September, the body has been in consultations with retailers and store card issuers on how customer information can be improved.

It’s expected that the Commission’s final report will order firms to adopt its proposals in full by the end of 2006.

A spokesman for the Competition Commission said, “We are already seeing lenders improving their consumer offering. Interest rates have already started to fall.

“ When our changes come into force, consumers will clearly see how much their store card debt is costing them.”

Lenders, however, have warned that the introduction of a ‘wealth warning’ could distort the market.

“ The ‘wealth warning’ could be construed as a de facto cap – leading to clusters of APRs sitting around 23%, which would have a detrimental effect on consumer choice,” a spokesman for the Financial and Leasing Association said.

Alisdair Milton
13/4/06

 

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