Plastic's not so fantastic as retailers slash rates

Retailers are expected to slash the cost of borrowing on store cards following increased competition from other forms of credit, a Competition Commission investigation heard yesterday.

High street stores could move away altogether from issuing their own plastic, the commission was told at an "open day" on the issue, after intense criticism by MPs of "extortionate" rates of interest that often reach 30% a year.

Swedish home furnishings retailer Ikea marked the first day of an investigation into store cards by halving the APR it charges its 300,000 cardholders. Other stores are expected to follow suit.

Ikea said it will match rival John Lewis from next month with a 12.9% APR, down from the current 26.8%.

John McFall, the chairman of the Treasury select committee, whose original investigation triggered the commission's examination, said such reductions were long overdue.

Kicking off the open day, he told an audience of representatives from the retail sector, consumer groups and card providers that his committee had found that APRs had changed very little in a decade.

"Retailers who will do almost anything to bring down prices and improve quality on their products have over-looked the way they treat some of their best customers - their store cardholders.

"While the cost of almost every other form of credit has fallen dramatically, store card charges have remained the same," he said

Mr McFall called on retailers to renegotiate contracts with the firms providing cards on their behalf and insist on APR rates that better reflect today's highly competitive credit market.

The commission's investigation into the £4.8bn store card market is at the request of the Office of Fair Trading and follows the Treasury committee investigation of the market last year.

It found that APRs for the 20m store cards in circulation regularly exceed 30%.

At the same time, the committee criticised the store card industry for charging "extortionate" rates, imposing hidden charges and employing unacceptable sales practices.

One of the two biggest store card providers, GE Consumer Finance, appeared at the commission's open day yesterday to defend its position.

The company's chief executive, Brad Cooper, said that nine out of every 10 GE cardholders also have a credit card, and that consumers were best able to decide which to use when shopping.

He also said changes to the whole store card market meant the commission's in vestigation should be widened to include credit cards "if it were to be meaningful".

Two of the biggest store card providers, John Lewis and Marks & Spencer, have already launched credit cards alongside traditional store cards and are actively encouraging customers to take them up. Michael Milner, the director of financial planning at John Lewis, said the retailer had taken the decision to offer its own credit card as a way for it to save money but recognised that in the long term, the store card markets appears to be in decline. "There is plastic overload in the UK, and I suspect retailers charging the highest APR rates are going to come under pressure to bring them down," he said.

"We will continue to offer store and credit cards for the immediate future, but this may change in years to come." The chairman of the inquiry, Paul Geroski, admitted it was coming under pressure to expand the investigation to other forms of credit but said a decision had yet to be made.