MONEY COMMENT
The Great Store Card Swindle

By Cliff D'Arcy
September 10, 2003

Yesterday, the Office of Fair Trading (OFT) announced that is to undertake a review of the store cards pushed by high-street retailers, after MPs on the Commons Treasury Select Committee raised concerns about market practices.

The store card market is worth around £4.5 billion, which is tiny in comparison to the credit card market. However, a single lender, GE Consumer Finance (GECF, a subsidiary of global giant General Electric), controls more than half of the market. GECF, which is based in Leeds, issues cards on behalf of dozens of retail groups, including Bhs, Debenhams, House of Fraser and Top Shop.

With 10m customers, GECF's market share could be as high as 70%, which naturally worries MPs. That's because market dominance of this kind can be abused, by suppressing competition and creating artificially high prices.

Furthermore, MPs gave GECF an ear bashing for refusing to allow consumers to take away copies of store card applications before agreeing to sign up. It's amazing that the world's largest company (GE is a $312 billion Goliath) actively promotes this underhanded practice!

What's more, store card issuers and retailers enjoy fantastic margins on this lending, thanks to incredibly high interest rates. For example, House of Fraser made £13.5m from its store card last year, on a turnover of just £20m.

Most store cards charge APRs of between 26% and 33%, which is seven to ten times the Bank of England base rate of 3.5%! Even worse, GECF's interest rates (and those of most store card issuers) have remained constant since 1999, while the base rate has tumbled. Make no mistake, this is high-street robbery and amounts to usury (loan sharking) in all but name!

There are three honourable exceptions to the rip-off store cards rule:

John Lewis/Waitrose: 13% APR (6.5% for the first six months) 
Fortnum & Mason:     15.3% APR
Marks & Spencer:     18.9% APR

Here are the real villains, the 'Over 30% Club' (rates for payment other than by direct debit)

Retail group        Monthly rate   APR
Comet Timecare      2.34%          31.9%
(includes B&Q, JJB Sports, Next, Superdrug and Woolworths)
Creation accounts   2.27%          30.9%
(for the thousands of outlets in the DUET network)
Country Casuals     2.26%          30.7%
(Kwik Fit, Laura Ashley, Monsoon and Russell & Bromley also charge this rate)

At an APR of 32%, your debt will double every 2.5 years, yet your minimum monthly repayments are barely chipping away at it!

So, by all means sign up for a store card for an initial 10% discount or other appealing incentives, offers or promotions. But, unless you are absolutely certain that you will be among the 60% of cardholders who repay their bills in full every month, don't spend on these cards. Instead, transfer your store card debts to a credit card offering 0% interest for an introductory period. After that, the best thing you can do with your evil store cards is to cut them up and line your bin with them!

Interest rates taken from the September issue of Moneyfacts.

More: The Perils of Using Store Credit | Britain's Most Expensive Credit Cards | Credit Card centre.