Measures proposed today to prevent shoppers running up huge bills on high-interest store cards don’t go far enough, says Which?.
The Competition Commission wants store-card providers to issue ‘wealth warnings’ to consumers as part of a series of moves to improve the sector. But consumers wouldn’t see the warnings until after they’d signed up.
The warnings would highlight a card’s high interest rate, as well as the consequences of making only the minimum repayment each month. But the competition watchdog wants both alerts to be included on monthly statements, rather than at the point of sale, and Which? has criticised the plans.
Principal Researcher Mike Naylor said: ‘The solutions the Competition Commission offers are all helpful, but won’t solve the fundamental problem that shoppers will continue to be sold these cards without adequate information about the rates or charges.
‘Information about interest rates should be prominently displayed at the point of sale and in marketing materials as well as on statements. Store cards are an unnecessary and extremely expensive way to borrow. Which? would advise people not to use them – there are much cheaper ways to borrow.’
Sector ‘overcharging’ consumers
The provisional remedies put forward today come after a Competition Commission report in September claimed the sector was overcharging consumers by up to GBP100 million a year.
It said the interest rates charged on the cards were between 10 per cent and 20 per cent higher than they would be if they reflected the providers’ costs. There was also a lack of competitive pressure in the sector, with most cards’ annual percentage rates (APRs) being around 30 per cent.
The Finance & Leasing Association , whose members include most store card providers, says it will continue to work with the Competition Commission on the issue.
The commission will now take comments on the latest proposals and then seek to implement an order bringing in changes aimed at improving the market.