Competition Commission Issues Warning Over Store Cards

by Robin Pilgrim, LawAndTax-News.com, London

08 March 2006

In a report published on Tuesday, the UK's Competition Commission warned that interest rates on some store-issued credit cards are too high, thereby breaching the country's competition rules.

Stating that the Annual Percentage Rates (APRs) charged on such cards are on average 10 to 20 per cent too high, the Commission explained that this was costing customers around GBP55 million too much in interest and insurance payments.

In order to remedy the situation, the Commission's report stated that store card credit providers must:

• Where APRs are 25 per cent 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; and
• Offer payment protection insurance separately from other elements of store card insurance.

CC Deputy Chairman Christopher Clarke, who chaired the inquiry, stated that:

"Retailers and store card credit providers are, we have found, effectively insulated from competitive pressures. The consequence is that store cardholders who take up credit and associated insurance pay too much.

He continued:

"The store card market is changing but remains an important source of credit and associated insurance. There are more than 11 million store cardholders with outstanding balances of well over £2 billion. Many store card programmes have APRs clustered around 30 per cent and we have found that there has been little competitive pressure to reduce them."

"Even though lower APRs have recently been, or are being, introduced for some store card programmes, even by the end of 2006 more than 90 per cent of store card accounts (whether measured by the number of active accounts or by the size of credit balances) are projected to continue to pay APRs of more than 25 per cent."

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