GE's 'stranglehold' over store cards keeps interest rates high

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The Independent Online

Britain's largest bank, HSBC, has accused American financial giant GE Capital of sewing up the market for store cards, which is keeping interest rates artificially high.

Britain's largest bank, HSBC, has accused American financial giant GE Capital of sewing up the market for store cards, which is keeping interest rates artificially high.

GE Capital supplies store cards to some of the country's largest retailers, including Arcadia, Debenhams and Comet, and controls over 50 per cent of the market. But in a 19-page report sent to the Competition Commission, HSBC accuses the US finance giant of using its dominance to prevent rivals from entering the market.

"HSBC believes that GE's contracts with retailers may be set up in such a way as to put a third party seeking to replace GE at a significant disadvantage," says the report. The Competition Commission has launched a full-scale investigation into store cards after the Office of Fair Trading expressed worries about competition in the market. In the UK there are some 22 million store cards in circulation. The average interest rate is 25.2 per cent, at least 10 percentage points above the rates on a typical credit card.

GE sets the APR and some of its cards are at the highest interest rates (see table).

HSBC provides store cards for John Lewis and Harvey Nichols, which have respective APRs of 13 per cent and 28.5 per cent. HSBC argues that if GE's stranglehold was broken, average interest rates would fall.

The bank believes GE has secured store card deals with some retailers for terms lasting more than 10 years. On top of this, it says that "incumbent finance providers" then attempt to renew the contracts midway though the term. This, says HSBC, is a "systematic attempt to foreclose the sector to competition".

A spokeswoman for GE denied that it had a stranglehold on the store card market. "The market is open and dynamic. Store cards are only one of a number of products, including store-branded credit cards."

She said that some retailers wanted long contracts with their card providers. "Long-term deals benefit retailers with stability ... and reduced costs."

She added: "APR is not the true cost of credit. Fees and charges are also part of the cost of credit."

Meanwhile, Dixons has decided to ditch its store card. The electrical retailer, which used HBOS as its partner, issued its last card in May. A spokeswoman said that the card was being axed because of "a lack of profitability".

GE'S CLIENTS

Retailer APR

Comet 31.9%

Kwik-Fit 30.7%

Laura Ashley 30.7%

Debenhams 29.9%

Burton 29.9%

Monsoon 29.9%

House of Fraser 29.3%

Mothercare 29.0%

Bhs 29.0%

Harrods 28.9%

Source: Money Facts

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