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Store Card Charges 13 March 2006

    Store cards that charge interest at 25% or more a year will have to warn customers on their statements that they can get cheaper credit elsewhere says the Isle of Man Office of Fair Trading.

    The Office has warned consumers before about the high rates of interest charged on store cards. Now the UK Competition Commission is imposing conditions on companies issuing store cards to ensure that they provide information to help store card holders understand the charges associated with using their card.

    Although the Commission found that companies were not working together to cheat their customers, it did find that the annual percentage rates (APRs) on store cards were too high.

    It found a lack of competitive pressure on either the annual percentage rates (APRs) charged or the cost of associated insurance.

    The Commission now says store card credit providers must:-

    • where APRs are 25% or above, warn cardholders on monthly statements that cheaper credit may be available elsewhere
    • give more and better information on all monthly statements
    • offer the option to pay by direct debit
    • offer payment protection insurance separately from other elements of store card insurance

    Chairman of the Office of Fair Trading, Quintin Gill MHK, advises:

    "Customers are often drawn into taking out store cards because many come with a tempting opening offer such as 10% off their first purchase. This can blind consumers to the real cost - the high interest rate or late payment charges. Often customers do not understand the cost of buying insurance policies such as payment protection inurance which can be bundled into the cost of the card. Greater transparency of information should bring more competitive pressures into the supply of store cards, thus bringing charges down. Providing cardholders with more information will also allow them to make comparisons between different forms of credit. Our message is as always - shop around."

    NOTES

    Although the average APR being charged by store cards has come down slightly in the last year or two, the Commission found that the card companies are charging interest at 10-20% above a level that would reflect the costs of providing the cards and generating a reasonable level of profit.

    The result is that the average store card APR has been 26.5%.

    The Commission estimates that by the end of 2006, 90% of store card accounts will still be charging interest of at least 25% a year with the majority charging around 30%.

    By comparison nearly all credit cards - 95% of them - are cheaper, charging interest of 26% or less each year.

    The number of store card accounts in use has been declining and had dropped to 11.4 million by the end of 2005.

    But with 70 different retailers offering them they are still an important source of credit for shoppers.

    13th March 2006

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