Store Cards

Store cards are credit cards issued by retailers. Many store cards may only be used to purchase goods and services from the retailer that has issued them. Retailers operate store cards as part of their customer loyalty schemes.

What is a store card?

A "store card" is simply a credit card issued by a retailer. Originally many of these cards were operated as charge cards - you had to pay the full amount off each month - but virtually all of them are now credit card arrangements in which you will be given a credit limit and be required to make only a set minimum payment each month. Again like a credit card most store cards offer interest-free periods of between 35 and 55 days. However unlike a general credit card many store cards are limited use cards since they cannot be used for making purchases at other shops.

You may more rarely hear them described as "private label" cards or "proprietary cards". In fact many of the store cards offered by UK retailers are run on their behalf by one company. GE Consumer Finance a subsidiary of the US firm General Electric is one of the largest store card operators in the UK with clients such as Debenhams and House of Fraser GE is the only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896.

Research by the Competition Commission published in March 2006 shows the number of active store card accounts is declining there were 11.4 million such accounts at the end of 2005 compared with 17.5 million at the end of 2002. The commission also found that some 57 of store cardholders who used their card in a particular month took on interest-bearing credit. The remaining 43 settled their balance in full and did not incur interest changes Source Competition Commission 07/03/2006.

Should I get a store card?

If you are standing in a shop wondering whether you can really afford the price of the item you're looking at who wouldnt weaken when the smiling salesman says he can take 10% off the price if you sign up for a store card. The sting in the tail of this story is the fact that many store cards have annual percentage rates APR of between four and five times base rate and are around a third as much again as standard credit card interest rates.

In fact the Competition Commission has stepped in to rule that the APRs charged by store cards are on average 10-20% too high. The Competition Commission says store card credit providers must

• where APRs are 25 or above warn cardholders on monthly statements that cheaper credit may be available elsewhere;
• give more and better information on all monthly statements;
• offer the option to pay by direct debit; and
• offer payment protection insurance separately from other elements of store card insurance.

The Office of Fair Trading has compiled a useful check list that you should run through before signing up for a store card

• An initial discount may be a good deal - but it will depend on how quickly you pay off the balance
• Be APR annual percentage rate wise - just how much will you pay on an un-cleared balance
• Is there is an interest-free period When does it end and what will the interest rate be afterwards
• Check all details of the agreement - APR interest free period penalties for default and late payment - and dont be afraid to ask questions
• Remember to consider carefully the costs and benefits of any Payment Protection Insurance PPI offered. It is optional and will cost you money
• Compare with other ways to pay
• A store card can be a serious credit commitment for which you may need to budget
• Beware of pushy sales staff and dont be lured into taking out a store card you dont want
• There is no need to sign on the spot - if in doubt take the agreement away read it and seek advice on it before you sign
• If you get into payment difficulties dont panic! Talk to the lender as soon as possible

If you can be disciplined about the way you use a store card it can be a great way of making substantial purchases and getting a big discount off the price. TV consumer rights broadcaster Lynn Faulds Wood says "I've done that twice buying a fridge-freezer and a coat - never used the credit card again so saved a lot." Source - GMTV 2004.

Can my store card become a credit card?

Not if you don't want it to! The card issuers would be only too happy for your store card to become a credit card giving you more ways and places to spend and thus go into debt and make money for them.

However the law Consumer Credit Acts 1974 2006 prohibits the unsolicited sending of a credit token. This was the stumbling block to the botched launch of Marks & Spencers & more credit card in October 2003. M&S Financial Services MSFS sent letters to store card-holders saying it was going to automatically replace store cards with the credit card unless they objected.

The Office of Fair Trading OFT intervened brushing aside M&S' claim that it was merely sending a replacement card. The OFT decided that the product was significantly different because &more could be used to buy products in other shops while the old style card could only be used in M&S. As a result M&S had to change the launch so that customers wishing to upgrade to the &more card had to confirm that they wanted the card by contacting MSFS while customers who want to keep their store card needed to do nothing. The company also had to undertake to change the wording in its store card agreement that purported to give MSFS an unrestricted unilateral right to change the terms of the agreement.

GE Consumer Finance began trying to "upgrade" Debenhams store card customers to a credit card facility in January 2004 and also attracted the attentions of the OFT. As a result GE issued revised terms and conditions specifically stating that the agreement gives it the right to upgrade store cards to credit cards.

If your store card tells you it wants to be a credit card remember to compare its terms and conditions with other credit cards before you say yes.

What do I get for my loyalty?

Store-related loyalty schemes may appear attractive if you often use the shop in question. However they should not be a key factor in your decision-making process. For example Marks & Spencers "&more" credit card offers 1p cash back for every £1 you spend at the store and 0.5p a £1 for spending elsewhere. However you have to use the rebated money in M&S. What does this mean in reality? That you would need to spend roughly £1000 in Marks & Spencer in order to generate enough rebated money to purchase a pack of five knickers!

A survey carried out by Somerfield in 2005 showed there are 154.2 million loyalty cards in circulation in Britain with 56 of shoppers owning three or more and 20 with more than five. The survey also showed some £958 million of unclaimed benefits held on loyalty cards Source Scottish Daily Record 24/12/2005.

It is increasingly evident that we are not loyal to one company but juggle multiple cards. Yet it seems many of us do nothing with them.

If you are offered a store card that carries any kind of loyalty bonus think carefully about just what benefit if any you are really likely to get from using the card.

Who can I turn to if I run into trouble?

If you think you are going to have difficulty in paying your debts then the first thing you should do is get in touch with the card issuer to make sure they know your situation. There are several organisations that can help you organise yourself to tackle store card debts

Citizens Advice Bureaux give free confidential and impartial advice on store cards. Details of your nearest bureau can be found in your local telephone directory.

Trading Standards provide a wealth of information for consumers and businesses. Find your local trading standards service in your telephone directory or alternatively go to the website below and type in your postcode to get the details.

The Consumer Credit Counselling Service CCCS offer free confidential help with personal budgeting advice on the wise use of credit and where appropriate managing achievable plans to repay debts.

Tel: 0800 138 1111

National Debtline

A free telephone helpline for people with debt problems in England Scotland and Wales.

Tel: 0808 808 4000

2009-03-09 16:58:22 © Moneyextra.com