It has recently been announced that stores are no longer able to give instant discounts to customers when they take out an in-store card. Several complaints have been made that retailers are hard selling their store cards and encouraging customers to spend more money than they actually have. The cards do not have favorable interest rates and can reach up to 30% if customers do not pay off the balance in time.
The current consumer debt in the UK is nearly £1.5 trillion and the government is keen to reduce this figure and store cards are doing nothing to help this. In addition to the instant discounts being taken away, customers will also be offered a cooling off period which will last for seven days. These proposals were recently announced by the British Retail Consortium and government ministers.
In order to stop people hard selling them in store, members of staff will no longer be given commissions for every card that they get someone to take out. Sir Mervyn King, the Governor of the Bank of England has stated that, “The population are facing the biggest squeeze on living standards ever and shoppers are particularly vulnerable to taking out the store cards which do them no favours.”
There are also concerns that when people take out a store card they are not properly checked to make sure that they can make the repayments. An investigation by Which? showed that a student with a great deal of debt was able to take out a store card with a limit of nearly £3000 even though his earnings were stated as £1000 a year.
Mark Hoban is the Financial Secretary to the Treasury and he commented, “The industry is bringing in measures to respond to this problem and this will mean that there are far fewer incentives for people to take out a card and they will actually be able to return it in the first seven days.”
Many of the store cards offered by some of the leading retailers in the UK are no different from credit cards, except that they usually offer less favourable rates than those offered by the banks and they come with in-store discounts. For example the store card for Debenhams offers 10% of the first purchase made with the card. Customers who take out a card who do not have a good credit rating may pay interest rates that are much higher than those you have good credit.
Initially, it was thought that putting a cap on these interest rates might be a solution but ministers decided that it would probably do more harm to consumers than good. They concluded that if the cap was introduced then they would simply refuse credit to poorer people. These new regulations are due to come into effect in the spring of next year.