Store card providers ‘overcharging’ customers

Consumers are being overcharged by as much as £100 million as a result of the high interest rates on store cards.

A report by the Competition Commission (CC) found evidence suggesting that there was an “adverse effect” on competition in connection with the supply of consumer credit cards and estimated that store card APRs were, on average, 10% to 20% higher than they would be, had they merely reflected providers’ costs.

The CC said that there was little competitive pressure in the store card market, which resulted in APRs, which averaged around 30%.

CC Deputy Chairman Christopher Clarke said: “Consumers’ sensitivity to APR levels and other charges is low. This results in store cardholders who take up credit, and associated insurance, paying more than they would in a fully competitive market.”

The CC identified around 70 retailers who operated store cards, with the majority of cards being provided by just six issuers. At the end of 2004, there were almost 14 million active store card accounts, with outstanding balances of about £2,500 million.

The CC found that around 57% of cardholders who used their card in a particular month, took on interest-bearing credit, while the remaining 43% paid their balance in full and did not incur interest charges.

The CC recommended that better information, regarding interest rates, payment methods and related insurance be placed on statements in order to keep consumers better informed.

The Finance and Leasing Association, whose members includes all the major store card providers, said that the market had begun to improve, since regulators began examining store cards two years ago. Ashley Holmes, head of legal affairs at FLA, said: “We are now seeing lower store card APRs, the move to store branded credit cards and greater consumer transparency.

“FLA continues to consider initiatives which could address the Commission’s concerns, particularly those on transparency, and also shares their interest in consumer protection. We will continue to work with the Commission to ensure all areas are fully explored and that the proposed remedies are targeted and proportionate.”

(KMcA/SP)