A high price to pay


STORE CARDS are squeezing even more money out of their customers by selling them expensive - and often useless - insurance which can push interest rates up to more than 50%.

Shoppers who splashed out at Christmas using these overpriced cards face a New Year ringing up interest if they don't clear their debt in full.

The true cost of the interest is often disguised because the monthly rate is highlighted, and this appears to be much lower.

But many store cards charge as much as 30% interest, and as the insurance sold with the card can cost as much as 1.5% of the debt every month, this can push the annual interest rate up to 56%, according to data specialists CreditChek, part of Mortgagechek.

That is almost 15 times more than the base rate, and is charged by stores such as Laura Ashley and Country Casuals whose cards are run by GE Consumer Finance, the biggest provider of store cards.

There are nearly 22 million store cards in Britain and about £4.8bn was spent on them in 2002. The average interest rate is 27% - this compares with an average of 15% on credit cards from major banks.


• Graduate Nicola Phillips, 23, took out a store card at House of Fraser when she was a student in 2002. But when she went home in December, her mother made her cut it up. She had run up £350 on the card and taken out a loan for £5,000.

'I'd taken out insurance with it as well. The store staff just skipped over the explanation of it very briefly and didn't point out any of the drawbacks,' says Nicola.

'It took me six months to pay the card debt off. It's a ludicrous interest rate.

'Now I avoid store cards and just keep my credit card for emergencies.'


The Treasury Select Committee, which is looking into credit card practice, criticised retailers for their underhand tactics in promoting their cards without revealing the true cost to the customer.

The committee was horrified to hear that staff in stores were refusing to allow customers to take away the application form, so that they could study the terms and conditions.

Staff usually fill in the application in the store, often with the box for insurance already ticked, and simply ask the customer to sign that they want the insurance.

Most of the cards issued by GE Consumer Finance, including those of House of Fraser, Debenhams and Top Shop, charge £1.50 per £100 owed on their card for insurance called Account Cover.

Payment protection insurance (PPI) pays your monthly card bill if you lose your job, or if you can't work because of sickness or an accident.

But GE's policy also covers your purchases against damage, and if the store reduces the price of items you have bought within the next 100 days, you'll be given the difference in the price - both perks which are offered free by credit cards such as Barclaycard.

The two cheapest store cards are from Marks & Spencer, which charges 18.9% and 0.75% for insurance, bringing the total down to 29.8%, and John Lewis, which has an APR of 13% and doesn't sell PPI.

GE has promised to improve the information it supplies to customers on APRs and other charges on its cards following the select committee's criticisms.

GE last reduced the rate on its store cards in April 1999. Since then, the base rate has fallen from 5.25% to 3.75%.

Simon Burgess, of insurance broker Goodfellows, says: 'Stores take a huge commission on PPI, but it's not worth the paper it's written on. If you do make a claim, the insurance often only pays the minimum monthly payment - not the whole balance.'

Increased competition for current account customers has led to some improved interest rates. Building society Norwich & Peterborough's new Gold current account pays 1.61% net interest (2.02% gross) on balances, and offers a rate of 8.9% on approved overdrafts.

Accounts can be run through the branch, by phone, post or online.

Nationwide's Flex-Account pays up to 1.8% (2.25%) and has a lower overdraft rate of 6.75%. But you get that rate of credit interest only if you pay in at least £1,000 a month.

Internet bank cahoot pays either 2.68% (3.35%) or 2.76% (3.45%) on credit balances, but you have to run your account over the internet.

A high price to pay

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