| Store cards will have to carry warning on interest rates |
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LONDON: Britain's Competition Commission is intending to initiate action against the exorbitantly high rates of interest charged by store card providers. The regulator said it will make it mandatory for the card providers to give clearer warnings to borrowers about the rates of interest and other charges they levy. It is estimated that in some cases, the card providers charge interest as high as 30 per cent a year.
The commission said card providers who charge interest of more than 25 per cent will be required to give a "wealth warning" informing customers that their cards are more expensive than other sources. The statements issued by the card providers should specifically and clearly contain the interest rates and the amount of interest the card holders will have to pay the following month in case they made minimum repayment.
The commission feels that the store card sector is controlled by a few players, which has resulted in higher rates of interests and other charges. It has come out with data in September saying the around 14 million card users are being overcharged by 100 million pounds a year. GE Consumer Finance is known to control as much as 50 per cent of the store card market, while the other players are HSBC Bank with its John Lewis and Marks & Spencer store cards, Arg Card Services, Creation Financial Services, Ikano Financial Services and Style Financial Services. Some 70 retailers issue store cards.
The lenders will have to respond to the regulator's "statement of remedies" before 9 January. It will then publish a regulatory ruling in February outlining rules and the card providers will have to comply with these in nine months.
The commission did not accede to demands to cap interest rates. Instead, it has come out with the "wealth warning" suggestion.
A representative organisation of the card providers, the Finance & Leasing Association, said the proposal may lead to the card issuers clustering the rates just below the specified maximum.
It is estimated that the cumulative balance payable on store cards by the users is around 2.5 billion pounds. Store cards can be used for purchases in a single store chain or in a limited group of stores, and normally discounts are offered within a fixed period on purchases. Some card providers also offer interest-free credit for short periods.
Editor of consumer magazine Which? Mike Naylor said the proposed rules are helpful to the consumers, but it is better if the information about interest rates is prominently displayed at the point of sale and in marketing materials as well as on statements. He said store cards are unnecessary and an expensive way to borrow and he would advise people not to use them.
Posted
on : Thu, 22 Dec 2005 14:15 GMT | Credit Cards News
By : Salim Patel
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