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Store Cards – What is the Real Cost?

Lisa Taylor from moneyfacts.co.uk comments on the store card market following the announcement of the Competition Commission’s recommendations.

“It is disappointing to see that the Competition Commission’s recommendations only scratch the surface of the issue with store cards, failing to take any action on the underlying problems, of the exorbitantly high rates, potentially mis-sold PPI and the lack of upfront information available to the consumer.

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“Even though the Competition Commission inquiry has already taken two years, the store card providers are being given a further 12 months’ grace to get their house in order.

“It is even more worrying that the Competition Commission has set 25% as its measure of what is considered a high rate of interest in the current market. Does that mean that if all store card providers reduce their rates to 24.9%, it will be considered acceptable, even though that is over five times the current base rate and double the cost of most credit cards?

“Putting warning notices on statements isn’t going to solve the problem. By the time you receive your statement, the damage is done. You’ve already been on your spending spree and probably been persuaded to take the associated PPI cover by the shop assistant.

“But would consumers still purchase their goods using these cards if they actually realised the true costs?

“Many store cards providers entice consumers into accepting the card by offering an introductory discount on the goods purchased, normally around 10%.  This may be a substantial saving worth taking when making larger purchases. However this initial saving is soon eroded by the large interest charges if the consumer fails to pay off this balance in full.

“Take for example a consumer stocking up their wardrobe with the latest spring wear, spending say £250. The consumer may benefit from the £25 initial discount on their goods. However if they were to leave the £225 balance on their ‘acceptable’ 25% interest store card, repaying only the minimum payment each month, it would take a shocking 6 years and 5 months to repay, and they would pay almost £180 of interest.

“So knowing this, how many consumers would have been prepared to pay over £400 for their goods initially purchased for just £250? By the time the purchase is fully repaid, the outfit would most certainly be out of fashion and for the same amount of money you may have been able to stock up your spring and summer collection.

“The store card providers are getting off lightly with these new regulations. More action needs to be taken to ensure these consumers are receiving the full picture before entering into the deal or better still further investigation taken into why store card providers are able to get away with charging such high rates of interest.”