Regulators step up store cards inquiry

Britain's Competition Commission intensified pressure on retailers and store card providers to lower excessive interest charges, saying they might be guilty of price-fixing.

Britain's Competition Commission intensified pressure on retailers and store card providers to lower excessive interest charges, saying they might be guilty of price-fixing.

Retailers and credit companies have little incentive to drive down interest rates as they benefit financially from high annual percentage rates (APRs), and do not tend to respond to changes in the base rate, the Commission said in a consultation document.

Professor Paul Geroski, the Commission's chairman who is leading the store card inquiry, said: "We are far from making up our minds but we are concerned that there may be limited competitive pressure on APRs and other charges and that retailers and credit providers may benefit from the level of APRs to the detriment of consumers. We also need to consider further whether the nature of the store cards business is leading to outcomes such as excessive profits for providers."

He said part of the problem was that consumers tended to be "insensitive" to charges on store cards, regarding them primarily as loyalty cards. He also noted that only about half of store card users actually borrow on them.

A survey by uSwitch, a personal finance research company, has found shoppers who use store cards can end up paying double the amount quoted on the price tag because of extortionate interest charges. Among the highest interest rates was the 29.9 per cent APR levied by Debenhams and River Island, whose cards are provided by GE Consumer Finance, by far the largest store card issuer in the UK with 10 million cards. The other top card providers include HSBC - which supplies store-branded credit cards to Marks & Spencer and John Lewis - Creation Financial Services, Argos, IKANO and Royal Bank of Scotland. Barclays recently won the House of Fraser contract.

A spokeswoman for GE urged the Commission to investigate the wider consumer credit market, worth £207bn, rather than singling out store cards which she said make up less than 3 per cent of the market. The Commission said it had explored the wider market.

The Commission will hold further hearings in private in February and will announce its findings at the beginning of April. It can force retailers and card providers to make changes but has no power to impose fines.