Retailers warned over 'exorbitant' cards

Retailers charging "exorbitant" interest rates on their store cards were ordered yesterday to include warnings on statements informing customers they could shop around for better deals.

The competition watchdog told high street shops that any cards with rates of more than 25% had to be accompanied by the "wealth warnings" to discourage profiteering and improve communication.

But MPs and consumer groups said the Competition Commission had let retailers and store card providers off the hook. They said the watchdog's report failed to tackle obvious abuses that pushed many customers into debt.

More than 70 shop chains, from Harvey Nichols and Selfridges to New Look and TJ Hughes, offer store cards with enticing discounts. Some spice up the offers with invitations to after-hours shopping nights and exclusive sales. Criticism has centred on interest rates and charges, but consumer groups have also expressed concern about the way cards are sold - often by staff with little experience of financial products - and the dominance of a select band of finance companies.

The Competition Commission's report agreed with much of the analysis put forward by consumer groups. It said retailers and store card providers were insulated from competitive pressures, and consequently customers paid too much. Between 1999 and 2003, annual percentage rates (APRs) "have been some 10% to 20% above what they would have been had they reflected providers' costs across the sector".

While the number of store cardholders had declined from 17.5 million in 2002 to 11.4 million at the end of last year, outstanding balances of more than £2bn still existed, and cardholders were paying in excess of £55m a year more than they should in interest and other charges.

It also found that only six firms provide the financing. GE Consumer Finance had by far the largest share, at 70% by some measures and, according to the commission, earned "profits that were persistently and substantially in excess of the cost of capital". But it rejected calls to cap interest rates, instead concluding that a warning on store cards bearing rates of 25% or more should be imposed.

The report said store card statements should look more like their credit card counterparts, showing the interest payable the next month, the level of fees and charges, and charges for insurance bought to cover monthly payments. Customers should be allowed to pay by direct debit and insurance should be sold separately.

Michael Fallon, the deputy chairman of the Treasury select committee, described the report as "feeble" and said the watchdog had done little to protect consumers.

Which?, formerly the Consumers Association, said the commission had produced a series of "anodyne" remedies that were not supported by its own findings.

The National Consumer Council said: "Despite finding that the store card market is not competitive and that consumers are paying £55m over the odds every year, we are extremely concerned that the commission's proposed remedies won't get to the heart of the problem.

"NCC is highly sceptical that warnings about cheaper credit and better APR information on customer statements will do much to lower charges. The commission itself has acknowledged that consumers are not sensitive to store card APRs. This is a market that's been seriously failing consumers for a long time. Expecting consumer behaviour alone to make it work is letting the industry off the hook."

The Finance & Leasing Association, which responded on behalf of the big store card providers, said the report recognised that retailers had dropped interest rates and many shops had switched to store branded credit cards. "During the course of its inquiry, FLA and our members have developed initiatives aimed at addressing the commission's concerns, particularly those on transparency and enhanced consumer choice. Much has been done already to help consumers with summary boxes on statements and 'wealth warnings' for minimum payments."

But providers were concerned "the remedy could harm the most vulnerable consumers, who would be rendered unprofitable to serve by store card providers and whose alternative forms of credit are at higher APRs than on store cards".