New rules introduced a year ago have failed to clean up store cards. Indeed, our exclusive research shows some cards have become more expensive...
On 1 May last year, new rules were introduced to protect the UK's eleven million store-card holders. In March 2006, the Competition Commission concluded that cardholders were being ripped-off by at least £55 million a year, thanks to extortionate interest rates, insurance premiums and other charges.
Hence, the Commission imposed new regulations on store-card issuers regarding the promotion and advertising of store cards. Since 1 May 2007, store-card issuers which charge annual percentage rates (APRs) of 25%+ must:
1. include rate warnings on monthly statements, warning cardholders that cheaper credit is available elsewhere; and
2. display a Summary Box (also known as an Honesty Box or Schumer Box) listing interest rates and penalty charges. Also, this must warn about the dangers of making only minimum monthly repayments (MMRs).
However, the Commission did not insist that store card providers cut their rip-off interest rates.
And so, as I predicted thirteen months ago, the new regime has done almost nothing to improve the future for store cardholders. The following table lists the interest rates charged by 27 leading store cards, and how these have changed since 1 May 2007:
Store card | Interest rate (% APR)* | Change since 01/05/07 |
|---|---|---|
Argos | 27.9 | +2.0 |
B&Q | 23.9 | |
Bentalls | 27.2 | |
Bhs | 29.0 | |
Burton | 29.9 | |
Creation Account Cards | 30.9 | |
Debenhams | 19.9 | +1.0 |
Dorothy Perkins | 29.9 | |
Edge Card | 29.9 | |
Evans | 17.9 | |
Fortnum & Mason | 15.3 | |
House of Fraser | 19.9 | -9.4 |
IKEA Home | 12.9 | +7.0 |
Jaeger | 24.9 | -2.1 |
Laura Ashley | 19.9 | -10.0 |
Marks & Spencer Money | 23.9 | +4.0 |
Miss Selfridge | 29.9 | |
Monsoon | 18.9 | |
Mothercare | 19.9 | |
Oasis | 24.9 | -5.0 |
Principles | 24.6 | |
QVC | 28.1 | |
River Island | 17.9 | |
Russell & Bromley | 23.9 | -6.0 |
Selfridges Account | 27.7 | |
Topshop/Topman | 19.9 | |
Warehouse | 29.9 | |
Average | 24.3 | -0.7 |
Source: Moneyfacts magazine
* for payments other than by direct debit
Incredibly, four card issuers have actually increased their rates since May 2007. These villains are all well-known retailers: Argos (up 2%), Debenhams (up 1%), IKEA Home (up 7%) and Marks & Spencer Money (up 4%)!
At the other end of the scale, five retail groups have reduced their store-card APRs: House of Fraser (down 9.4%), Jaeger (down 2.1%), Laura Ashley (down 10%), Oasis (down 5%) and Russell & Bromley (down 6%).
Overall, the average yearly interest rate charged by these 27 store cards has dropped a mere 0.7%, from 25% in May 2007 to 24.3% APR today. A typical credit card charges around 16.5% APR, which is still around 8% lower than the typical store card.
That means, on average, store cards charge roughly 50% more interest than credit cards -- half as much again.
Frankly, this is a joke and, yet again, the Competition Commission has been beaten by greedy lenders. What a waste of the millions of pounds spent investigating this anti-competitive market. Hence, I will continue to refer to store cards as "the Devil's debt" or "the crack cocaine of credit"!
Then again, store cards do provide worthwhile benefits to sensible users. For instance, interest-free credit of between 51 and 59 days is available to full payers. In addition, they offer loyalty and reward schemes, discounts, promotions and special offers to new and existing cardholders.
Finally, if you are paying interest on a store-card balance, then I'd recommend you slash your interest bill to zero by making use of 0% balance transfers. By transferring your debts to a card which offers extended interest-free credit, you can avoid paying interest for up to fifteen months. So, ditch your store card and switch today!
More: Find cracking credit cards today| Cut Your Interest Payments Down To Zero| The Best Ways To Get Out Of Debt