FLA defends store card rates

18 March 2004
The store card industry offers efficient credit to a majority of consumers who successfully control their debt, according to a spokesperson for the Finance and Leasing Association.

Martin Hall's comments come as the OFT has referred the supply of store card services to the Competition Commission following a study into the sector.

The investigation was prompted by concerns raised by the Treasury Select Committee. The OFT has claimed that there is a lack of transparency about store card costs, and it is concerned that most store cards have an APR that is 10% higher than the APRs available with credit cards.

Mr. Hall told BBC One's 'Breakfast': 'There's no doubt that rates on store cards are comparatively high compared with credit cards, but you must remember that the average balance that people have is under £150, they are used about six times a year, and the average purchase is around £40, whereas the set-up costs are pretty much the same as for credit cards.'

He continued: 'The amount of debt outstanding on store cards is actually less than the amount of new credit given a year; that means that many, many people - something like half of people - pay off the whole amount at the end of each month and never pay any interest at all.'

Mr. Hall also claimed that the industry had 'reacted very quickly' to some of the comments about lack of transparency, and that consumer information boxes would now appear on all product information, summarising the key costs.

He went on to insist that consumers were checked before they were allowed to receive store cards: 'No cards are actually granted without credit checks and it's quite hard to see how you could do a great deal more at the store card level, which is usually for a very low credit limit to start with, without stopping the business altogether.'

He noted that the providers would have to receive and validate information about earnings and other debts that would lead to administrative delays.

'The whole point of the store card is that it's there when you want to buy the goods,' he added.

Mr. Hall continued: 'You have to be responsible and the way that credit checking works is that lenders do share a very large amount of information about other people's debt. This information is not complete yet - a number of the larger banks do not share information, particularly current account information - so we can't get a total picture, but you can get quite a good picture.'

'The political question which is what the Government is going to have to address is how do you balance the interests of the great majority of people looking for efficient credit and who don't have any difficulty with their debts,' he asked, 'against those of an admittedly vulnerable number of people who are quite hard to pick out in the first place?'

In a statement released today, John Vickers, OFT Chairman, said: 'Our study has concluded that there are serious questions regarding competition in the supply of store card services to retailers and in the supply of store card credit to consumers. The Competition Commission will now investigate further and can then decide on any
necessary remedies.'