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Beware of Store Card Charges 22 September 2005

    There is evidence that consumers in the UK are being overcharged £100m a year as a result of inflated interest rates on retail store cards, the UK Competition Commission has said.

    The organisation said retailers and lenders were protected from competitive pressures and there was little incentive to reduce annual percentage rates (APRs) on store cards, which currently averaged about 30%.

    This compares favourably to credit cards which commonly charge between 15% and 20% and the Bank of England base rate, which is currently 4.5%.

    The Commission is now consulting on a number of potential remedies, including forcing providers to put health warnings about base rates on store card statements and improving information on payment methods.

    But what should consumers do? The Isle of Man Office of Fair Trading is conscious that some consumers have difficulty understanding the terminology involved in credit and are not always diligent in comparing the different interest rates and charges made by credit companies. This may result in store cardholders who take up credit and associated insurance paying more than they necessarily need to.

    The Office advises that anyone considering taking out credit should look at the Annual Percentage Rate (APR) charges by the store card lending company and compare it against the APR of other credit cards. The APR takes into account not just the interest you have to pay on the loan but also other charges you have to pay, for example, any arrangement or annual fee.

    You do not need to know how to work out an APR. The important thing is that APRs show the cost of borrowing on a standard basis so you can compare one APR with another. But you also need to find out from the lender if the interest included in the APR varies or is the rate fixed? If the rate is variable, your repayments could go up or go down. If the rate is fixed, your repayments will stay the same.

    Sometimes lenders will offer you a discount on your first purchase with a store card to entice you into taking the credit. Consider whether this offer is worth taking up when you look at the overall cost of the credit.

    Chairman of the Office of Fair Trading, Quintin Gill MHK, is aware that consumers can find credit terms complex. "Sometimes it's difficult to look cool headedly at comparing different interest rates when faced with 10% off your first purchase" he said "but you do need to take this into account or your 10% discount could prove very expensive overall. It's great if you can pay off the full amount of the loan when it becomes due but many people can't so be wary, look at the APRs and find the best deal for you. Further information on credit and store cards is available on the Office website or you can contact our Consumer Advisers on 686500."

    22nd September 2005

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