Changes to store card market

Following the Competition Commission’s enquiry in March 2006 into the store card market, from 1st May 2007 all providers will have to print warnings on statements if they charge consumers annual percentage rates (APRs) of 25% or more.

They will also have to include an honesty (summary) box that outlines interest payments and penalty charges, and carry warnings about the dangers of making only the minimum monthly repayment.

Nick White, Director of Financial Services at independent price comparison and switching service uSwitch.com, comments: “Whilst the new rules for store cards that will come into effect tomorrow are a small step in the right direction in terms of improving transparency, it appears the Competition Commission is closing the stable door after the horse has bolted. We believe that consumers need to be made aware of high APR’s on store cards (up to 30.9% APR) at the time of signing up to these deals so they know exactly what they’re getting.

“Our research has identified at least 19 store card providers that are offering cards with APR’s above 25% APR so it will be interesting to see how quickly they react to the new legislation. The initial report in March 2006 from the Competition Commission found that interest rates were on average 10-20% too high, yet more than one year on the average store card APR has fallen by just 0.3% - from 24.6% to 24.3%. This is almost 7.7% higher than the average purchase rate on a credit card at 16.6% APR.

“There is also a big issue around the fact that retail staff selling these cards are not trained in financial services and, in many cases, do not fully understand the interest payments or the basic terms and conditions of the credit cards they are selling. This training should be mandatory yet it is still not happening.

White concludes: “Overall, unless a consumer really has the funds and the discipline to repay their store card in full each month they will undoubtedly be better off with a 0% APR credit card for new purchases, such as the Sainsbury’s Bank MasterCard which offers 0% for 10 months. Alternatively, for customers that have already been the victim of an excessive store card APR, it would be advisable for them to transfer their balance to a 0% balance transfer card such as such as the MBNA Platinum Plus Visa over the same period (12 months).”