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Last Updated: Wednesday, 14 September 2005, 10:25 GMT 11:25 UK
Q & A: Store card proposals
A signpost emblazoned with the word debt
Borrowers are being overcharged by store card providers
The Competition Commission has proposed a shake up of the store card industry that could mean big changes for the industry and borrowers.

What has the Competition Commission concluded?

In short, the Commission has found that store card holders are being overcharged by 100m a year as a result of inflated interest rates.

The store card market was deemed to be uncompetitive with little incentive for providers to reduce annual percentage rates (APRs).

How expensive are store cards?

The Competition Commission said that store cards are between 10% and 20% more expensive than credit cards.

Typically, store cards charge APRs of between 25% and 30%. On the other hand, most credit cards charge between 15% and 20% APR.

However, the Finance and Leasing Association (FLA) has said that store card interest rates have been falling of late, with fewer providers charging in excess of 30%.

The FLA added that some store cards had been replaced by shop branded credit cards - which can be used at all retailers - with typical APRs well below 30%.

Meanwhile, consumer groups have expressed concern that a large proportion of store card borrowers are on relatively low incomes.

As a result, they argue, the highest rates are paid by the people who can least afford.

What changes have been proposed?

The main recommendation is that providers should put health warnings about rates on store card statements and improve information on payment methods.

The Commission's proposals for statements to include more consumer information will bring the store card market in line with the wider credit industry.

Previously, an Office of Fair Trading (OFT) investigation into the industry had found that just 23% of people applying for store cards were offered the opportunity to take the application form away with them.

In addition, the OFT found that information on what interest rate was being charged was not available in a third of cases, and 40% of the shoppers thought the information provided was inadequate.

I have a store card. Will I see the rate of interest I pay fall?

The Commission has the power to introduce price caps but has avoided taking this step.

Instead the hope is that by introducing warnings on statements consumers will become increasingly savvy about their choice of card.

Ultimately, the idea is that improved consumer awareness of APRs will mean greater competition in the market and a general lowering of interest rates.

The Commission has warned that it will take quite some time before the market becomes more competitive and interest rates fall.


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