The Conservative party has laid the blame for Britain’s debt situation firmly on store cards.
George Osborne, the shadow chancellor, has attacked the store card industry for charging “excessively high interest rates” and claims that this issue is central to Britain’s over-indebtedness. However, the average balance on a store card is just £162 and in 2006 the Competition Commission concluded that the issue was best tackled with the provision of information to consumers.
The issue of store cards has become a political hot-potato in recent years, with the store card industry becoming a scapegoat for problems of over-indebtedness. This is due to the high rates of interest charged on these products. However, the store card market is very small, accounting for just 1.3% of unsecured consumer lending in the UK, while the average balance on these cards is just £162.
Provision of information to consumers is vital in order for them to be able to make an informed choice of the type of credit they take out. The Competition Commission’s investigation in 2006 addressed this issue. The commission’s remedies included that when the Average Revenue Per User (APR) is above 25%, store card providers must inform cardholders that cheaper credit may be available elsewhere, as well as providing clearer information on monthly statements. The Competition Commission certainly believes that it has struck the right balance between consumer choice to take out a product and the provision of information so consumers can make an informed decision.
Ultimately, store card issuers provide a service to consumers who choose them, and they can provide good value when any merchant discounts and other benefits are considered. They do tend to charge high APRs, and this is why the provision of information to consumers is so important. However, to place the blame for consumer indebtedness on the store card industry is clearly wrong, given the tiny proportion of consumer borrowing that it accounts for.
Fore more information see Non-standard credit cards in the UK
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July 29th, 2008 at 11:49 am
I disagree with you with your comment that ‘to place the blame for consumer indebtedness on the store card industry is clearly wrong’. As most shops who have store cards pressure their customers into signing up for them. Most clothes shops encourage customers at the point of sale to sign up to the store card and get a discount.
They particularly target younger customers and students who may not have much financial knowlege and experience to know what they are signing up for.
Store cards can encourage young people to get into the habit of buying things on credit which can then lead onto the same habit with credit cards, loans etc. Many store card customers have had to take out loans to pay off their store cards and so your figures above are not entirely accurate as they do not take into account debt consolidation.
So I think that the Conservative Party have a very strong argument and that store cards have played a large part in the debt crisis, both directly and indirectly.