Store cards' interest rates to be examined

The Competition Commission plans to look at the interest rates charged on store cards as part of its inquiry into the ?4.8bn market, it said today.

It said it would look at the pricing of cards and their profitability both to retailers and the companies that provide them, as well as whether there was sufficient competition in the market. In a statement setting out the aspects of the market it planned to investigate, it said it would also consider the benefits to cardholders as well as retailers and credit providers.

In addition it will look at whether consumers are aware of the costs of using store cards as a source of credit, and how easy it is for them to get credit elsewhere. There are around 17m store cards being used in the UK with transactions worth around ?4.8bn a year.

It will also consider whether a lack of competition in the market is leading to higher prices, less choice or less innovation for consumers. The commission was asked to investigate whether there were any features of the store card market that prevented competition by the Office of Fair Trading (OFT) in March this year.

The move followed a six-month study of the sector by the OFT which concluded that features of the market appeared to prevent, restrict or distort competition. It said interest rates charged on the cards could be as high as 30%, there was a lack of transparency about the cards and consumers appeared to find it difficult to assess the costs and benefits of using them.

Professor Paul Geroski, chairman of the commission and the store cards inquiry group, said: "This is a complex inquiry examining a multi-million pound industry which affects a large number of people and so there's a big responsibility for us to get it right.

"In order to do this, we have to ensure that we're asking the right questions. So we've spent the first part of the inquiry gathering and analysing an enormous amount of evidence, which will enable us to focus on the crucial issues."

The Finance & Leasing Association, whose members provide store cards, said it was reassured that the commission would be looking at store cards in the wider context of the consumer credit market.

Director general, Martin Hall, said: "We have always maintained that store cards should not be looked at in isolation. They are a small part of the highly competitive consumer credit market. New business generated through store cards amounted to ?5bn in 2003, just 2.5% of total consumer credit."

The commission has so far written to more than 350 retailers, store card providers, credit card providers, banks, regulators and consumer groups, and held more than 20 hearings. It will continue to hold hearings during the rest of this year, and hopes to publish preliminary findings by the end of March.