Store cards, which charge interest rates of up to 30 per cent, are to be investigated by competition authorities after the Office of Fair Trading found confusion and mystery around how much they cost customers.
The OFT has been investigating store cards for the past six months after criticism from MPs of the "extortionate" rates they charge. It said yesterday it had referred the £4.8bn market to the Competition Commission, and that there was a lack of transparency in all stages of providing store cards, from signing up customers to the information given after the card has been issued.
A third of Britons hold a store card, many lured in with the offer of an instant 10 per cent price reduction. But in a shopping exercise carried out by the OFT, information on the interest rate was not available in about a third of cases.
Only 23 per cent of the shoppers were offered the opportunity to take an application form for a store card away from the shop, and of the remainder, two thirds had the request to do so refused. "There are serious questions regarding competition in the supply of store card services to retailers and in the supply of store card credit to customers," John Vickers, the chairman of the OFT, said yesterday.
Store cards charges are about 10 percentage points higher than standard credit cards, with Laura Ashley and Russell & Bromley charging 30.7 per cent. But the OFT could find little to explain why this was the case, even with the extra benefits they offer.
"Customers are potentially paying £350m each year in excess interest payments on store cards alone," said Malcolm Bruce MP, the Liberal Democrat spokesman on trade and industry. "The Government must place a clear responsibility on the retailers and store card operators to inform their customers about the charges they can expect if they put purchases on cards with often extortionate rates of interest."
GE Consumer Finance, one of the major providers of store cards with a 42 per cent market share, yesterday defended its position. Store cards account for 2.5 per cent of total consumer lending, compared with 60 per cent for credit cards, and Brad Cooper, the chief executive of GECF, said most consumers did not use the cards for long-term borrowing. "Between 50 and 60 per cent pay off their balance within the interest-free period," he said. GECF has already introduced measures to make its charges more transparent.Reuse content