Competition Commission to examine Store Cards

The Office of Fair Trading has referred the supply of store cards to the Competition Commission following a study of the sector worth over £4.8 billion a year in the UK.

The first investigation referred under the auspices of the Enterprise Act, the OFT has concluded that there are features of the sector, both in the supply of store card credit to consumers and in the supply of store card services to retailers, that "appear to prevent, restrict or distort competition".

The study found a lack of transparency for consumers in the way store cards are offered and used with most store cards' APR around 10% above those available with credit cards.

Although the OFT had received few consumer complaints, the study raises concerns that consumers find it difficult to assess the costs and benefits of using store cards.

OFT Chairman John Vickers said: "Our study has concluded that there are serious questions regarding competition in the supply of store card services to retailers and in the supply of store card credit to consumers. The Competition Commission will now investigate further and can then decide on any necessary remedies."

During the mystery shopping exercise carried out as part of the study, the OFT found that less than one in four shoppers were offered the opportunity to take the application form away with them - of the remainder, three quarters had the request to do so refused. Also, information on the interest rate was not available in about a third of cases.

Before signing up for store cards consumers have been advised to:

• Consider if the alternative forms of credit available and would better suit their needs;
• Check the APR on the store card – especially if you don't plan to pay off your balance every month;
• Don't sign anything until you've considered it carefully – take the form away with you to consider if you're uncertain.

In the UK around one third of adults hold a store card, one in two hold a credit card and 58% hold debit cards.

In 2002, store cards accounted for 2.5% of total consumer credit lending in 2002, around £4.8 billion, compared with over 60%, £194 billion, through credit cards.

The OFT will also run a consumer education campaign later in the year to raise awareness of store card issues such as interest rates, minimum payments and signing up to agreements.

(SP)