Store Cards Overcharging By 20%

Britons who choose to put spending onto store cards are routinely paying 20 per cent too much in interest, the Competition Commission has said. The finding is part of a major survey that the watchdog has carried out into the cards, concluding that by choosing store cards over low interest credit cards consumers are collectively spending £55 million too much every year.

It has recommended that stores are forced to warn consumers of the costs when they apply, permit borrowers to pay off lending via direct debit and sell payment protection insurance separately. Stores which charge interest above 25 per cent should also be forced to tell borrowers that cheaper borrowing is available elsewhere.

"Store cardholders who take up credit and associated insurance pay too much," said Competition Commission deputy chairman.

"Specifically, we estimate that for the period 1999 to 2003, APRs have been some ten to 20 per cent above what they would have been had they reflected providers' costs across the sector as a whole, including a reasonable return on capital.

"Thus, average sector APRs have averaged some 26.5 per cent compared with our calculation for cost reflective APRs of some 22 to 24 per cent."

Consumer groups have claimed that the commission's recommendations do not go far enough however, saying that anyone paying 25 per cent is already being charged ten per cent too much.

However, it is easy for consumers to be duped into these high rates. Usually the store card is offered at the cash register when the customer has already got their other payment ready. Very often there is a money off deal when you sign up which is attractive at the time for the customer. It is only later when they get a bill or read the small print that they realise what exactly they have signed up for.

It is vitally important to read the small print before signing anything.

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