Beware hidden store card feesStore card ‘dormancy charges’ to be introduced
23 December 2010
Customers who do not use their store cards may be hit with new charges, or the cancellation of their accounts, it has emerged.
Britain’s largest provider of store cards, Santander, recently announced in a letter to its cardholders that it will be changing its terms and conditions. Hidden among the fine print is a clause allowing the bank to charge £10 if the card is not used for 6 months, or to cancel the card altogether if it is not used within a similar period.
The Spanish bank issues store cards for retailers including Burton, Debenhams, Dorothy Perkins, Mothercare, Topshop and Topman.
When we asked Santander about the changes, the bank said it was aligning store card charges with those applicable to credit card customers. In addition, the bank says, should a customer be liable to the new ‘dormancy fee’, he or she will be notified in writing before it is applied – allowing the consumer the opportunity to use the card and thus avoid the charge.
Store cards: sky high interest rates
Store cards have some of the highest interest rates on the market, with some charging APRs up to 60 times higher than the Bank of England base rate. Some store cards have rates that are more than four times higher than those attached to the market’s cheapest credit cards.
Store cards may be more tempting than ever at Christmas time, because retailers typically offer immediate discounts of around 10% to customers who open the accounts. However, store cards are a poor choice if you need to borrow money; the interest you are charged on your shopping is likely to significantly outweigh any special discount you receive for taking out a store card, according to Which? Money research.
Credit and debt expert Martyn Saville says: ‘Taking out a store card, using the discount you are offered and then cancelling the account may seem like a good option. It will save you money, and you won’t pay any interest on your purchases if you repay your balance in full and on time.
‘However, this is a risky strategy if you’re likely to forget to close your store card. Leaving it dormant could now mean you are hit with an unexpected fee.
‘In addition, £10 seems a lot to charge consumers simply for not using a card – particularly over a period as short as six months.’
Should I consider a store card?
When Which? investigated the availability of store cards, our researchers were concerned to find that a young man with no permanent job and a low income could obtain a significant amount of credit. Our work raised questions about how responsible some retailers are when selling store cards to consumers, who may not be properly informed of how the product works when they take one out over the counter.
‘If you’re looking to borrow,’ says Martyn Saville, ‘There are far better options out there. A 0% on purchases, cashback or rewards credit card might be a better choice.
‘If you already owe money on a store card, you may want to consider a 0% balance transfer deal. Our will show you how much you could save by transferring your debt from one piece of plastic to another.
‘Meanwhile, anyone walking around with a store card in their wallet that is only used occasionally should be aware that – from now on – this could end up costing them.’
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