Suppliers of store credit cards are set to go up in front of the Competition Commission, because of the market's restrictive and distorted practices, says the Office of Fair Trading.
A comprehensive OFT study of the £4.8bn market suggests there are features of the supply to both consumers and retailers which appear to prevent, restrict and distort competition.
In particular, says the OFT, most store cards have an APR of around 10% more than credit cards, yet there is no specific explanation as to why the difference is so high, as the additional costs or benefits to users do not appear to justify the extra charges.
According to data gathered by the Office of Fair Trading, around 30% of adults hold a store card, 51% have a credit card and 58% have a debit card.
That said, store card account for 2.5% of total consumer credit lending, compared with a 60% holding by credit card companies.
Although few consumer complaints have been submitted to the OFT, the study found there was a lack of transparency at all stages of the process - before signing, at point of sale and post-contract – as well as difficulty in assessing the cost of using a store card and its so-called benefits.
Part of the study involved a mystery shopping exercise which revealed only 23% of shoppers were offered the opportunity to take the application form away with them before signing up, while the three-quarters who asked to do so were refused.
This same practice revealed information about the interest rate was not available in around a third of cases, while four out of ten shoppers felt information provided was inadequate.
Analysis of the burdens on the retailers themselves reveals anti-competitive behaviour may include significant costs incurred where retailers attempt to switch to another credit provider, the imposition of lengthy contracts – which again incur heavy financial penalties if the store wishes to switch – and exclusivity agreements.
Although this is the first such review to be conducted under the Enterprise Act 2000, the related activities are being addressed in the context of the proposed Consumer Credit Act (1974) reforms.IFAonline
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