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Last Updated: Tuesday, 7 March 2006, 10:32 GMT
Q&A: Store card proposals
A signpost emblazoned with the word debt
Borrowers are being overcharged by store card providers
The Competition Commission has demanded a shake up of the store card industry that will 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 at least 55m a year - and possibly much more - 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 says that store cards are between 10% and 20% more expensive than they should be.

It estimates that by the end of 2006, 90% of them will be charging more than 25% a year.

By contrast, 90% of credit cards currently charge 22% or less.

The Finance and Leasing Association (FLA) says that some store cards have been replaced by shop branded credit cards - which can be used at all retailers - with typical APRs well below 30%.

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 them.

What changes have been proposed?

The main recommendation is that providers who charge more than 25% a year should put big health warnings about their rates on their store card statements saying that cheaper credit is available elsewhere.

All monthly statements should also display more prominent information about the APR, the interest payable next month, the level of fees and charges.

Payment protection insurance policies should also be offered separately.

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?

In theory yes, if the new proposals actually work.

Just the threat of them has brought down the average store card APR slightly in the last year or so.

The commission is hoping that consumer behaviour will do the trick; 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 says that its plans should come into effect in early 2007.

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