Leading article: Read the small print

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The Independent Online

Shoppers beware. The Competition Commission has found that people are being charged astonishing rates of interest when using their retail store cards. Those ubiquitous bits of plastic are costing Britons some £100m a year. The typical store card has an eye-watering 30 per cent Annual Percentage Rate (APR). Most credit cards are between 15 and 20 per cent APR. And consider that the Bank of England's base rate is presently 4.5 per cent. Store-card owners, whether they realise it or not, are paying well over the odds.

The Competition Commission is clear about what is going wrong: the store-card market is uncompetitive and, thus, interest rates are being kept artificially high. If there is any suggestion that retailers are colluding to keep rates high this must, of course, be exposed and those engaging in it punished. And retailers should certainly cease to tack payment-insurance products onto the store-card account. This is even more unfair and seems to be a deliberately confusing practice.

At the root of this issue, however, is not the deviousness of retailers, but the negligence of shoppers. It may be an uncompetitive market, but retailers have no incentive to reduce their interest rates with customers enthusiastically signing up to them every day.

According to Christopher Clarke, the Commission's deputy chairman: "Consumers' sensitivity to APR levels and other charges is low." This is a polite way of saying people do not read the small print. They are seduced by the promise of discounts on goods to make purchases on store cards. And deferring payment is seen as another benefit. But people do forget to pay off the balance in time and are hit with swingeing interest payments. Only then do they realise the downside.

The Commission recommends printing vivid warnings on store-card statements warning customers of the high interest rates and advising them of ways to clear the debt. This would bring the market in line with the wider credit industry. Credit-card firms began printing similar warnings on statements last year.

Retailers should do the same with store cards. Information is vital. The debate on debt is confused: the fact that Britain has household debt of £1 trillion is often reported in horrified tones, but debt in itself is not a bad thing. It simply means an increasing number of people have access to capital. The stigma attached to taking out a loan belongs to the days when there was little social mobility in this country.

The danger comes when people take on more debt than they can manage - or when they make poor decisions, as with store cards. The only solution is to educate people about the need first to read - and then understand - the small print before accepting credit.

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