The Office of Fair Trading's "informal fact-finding review" of store cards will be an interesting test of its ability and willingness to battle for the consumer in the teeth of what will be a fierce defence by retailers and GE Capital, the American group which supplies and administers the bulk of these often highly expensive cards.
John Vickers, the OFT's chairman, was berated last week by the House of Commons Treasury Select Committee for not launching an investigation under the Competition Act, with full legal powers. But he has left himself the loophole that come the new year, when his review will be complete, he may then take further action.
The omens are not good. John McFall, the Select Committee's chairman, has already accused Mr Vickers of complacency over credit cards generally, and of acting like an apologist for the industry. So he has some catching up to do. He made a start this week by announcing the terms of the store card review, looking in particular at the application of competition law to store cards, their marketing and sales practices, transparency issues and interest rates.
While GE Capital was swift to promise greater transparency, whatever that means, the nitty-gritty for most consumers is that last point about interest rates. These cards charge interest rates of up to 30 per cent, compared to the 12 to 18 per cent charged by mainstream credit cards and personal loans of less than 7 per cent. Store card rates have not fallen in the past four years, while the Bank of England base rate has halved to 3.5 per cent.
GE argues that the cost of money makes up only 15 per cent of the cost of running the cards. The other 85 per cent is taken up by operating costs because so many cardholders owe such small amounts compared to other credit cards. The reason John Lewis Partnership and Marks & Spencer charge lower rates is that they administer their own cards and take a loss for marketing reasons.
This suggests that the basic store card business model is fundamentally flawed, if it can make money only by charging such high prices. It works only because store cards are a sales aid for the stores and the borrowers do not look too closely at how much they are paying, otherwise they would go elsewhere.
However, the deciding battle will be fought on different ground. Mr Vickers has to decide whether store cards constitute a market in their own right, rather than being part of the wider credit card sector. GE has 70 per cent of UK store cards, but only 10 per cent if all credit cards are counted in.
No prizes for guessing which way GE is arguing. But the Association for Payment Card Services (Apacs), which represents banks and credit card companies which have lost business to GE, say it is a separate market, and I expect consumer groups to follow suit.
Store cards are unique in being issued by the seller of the goods which the cards finance, and in their conspicuously high interest rates. This is a racket that has gone on too long.
* The Investment Management Association (IMA) steps into the debate over financial education in the most practical way possible today, by publishing a free guide to the basics of getting your financial affairs in good shape. Called Introducing Investment, it aims to help individuals make informed investment choices and manage their finances better.
The guide asks the questions you would expect an uninitiated would-be investor to ask, such as How can I avoid risk? Each page has a handy What if ...? section to deal with doubts.
While it is immensely encouraging that the IMA has decided to work with the Financial Services Authority and the Government to improve financial education, I still feel that this guide shares one of the shortcomings of the FSA's own literature: it assumes too high a level of education. We still need guides written in the most basic language that can be devised, aimed at people who left school as early as possible with no formal qualifications, and don't read a newspaper. These are the people who really need help.
For a copy of the IMA guide, telephone 020 8207 1361, or go to www.investmentuk.org.
William Kay is Personal Finance Editor of 'The Independent'Reuse content