Store Card Debt

Introducton

FACT - There are more than 11 million store card holders with outstanding balances of well over £2 Billion

• What is a Store Card?
• Who are the main providers of credit card debt?
• UK store card debt - problem areas

It is vital clients read this section on store card debt as they need to be made aware about the hefty interest rates attached to store card debt. It so easy to allow debts on a store card to add up. UK shoppers must be made aware exactly how much their store card debt is costing them. Please note that since January 2007 we have a dedicated team advising on store card debt as its primary focus. The aim of the store card debt advice team is to help UK consumers know exactly what their store card debt is costing them.

Money Advice Direct carry out on going research and surveys on understanding the UKs obsession credit store card debt. British shoppers find store card a tempting way to get hefty discounts on their shopping. Shoppers can not resist the temptation of saving up to 20% on purchases if they sign up to the stores store card. In the UK store cards can charge interest of up to 30%. There are millions of consumers affected by store card debt and we are doing our best to eradicate the problem.

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What is a store card?

Store cards, a type of branded credit card for use in one particular shop or chain, are traditionally the most expensive way to borrow money, charging up to 30% annual percentage rate (APR), twice the rate of a high street credit card.

The benefits of store cards

• Store cards can be useful and consumers are able to use them with a considerable interest free period and at the same time take full advantage of any special offers and incentives offered by retailers that appeal to them.
• Customers may also wish to form a relationship with a particular brand or store. The fact that they can get discounts from stores they like and \ or be informed of new merchandise ahead of other customers cannot be ignored either in this “designer-label” society. It would be wrong therefore to underestimate the need for some customers to be seen as “affinity” buyers.

The disadvantages of store cards

• There are several dangers but in the light of the whole area of unsecured credit they should not be over-stated. There have been several emotive headlines in the press recently regarding individual debt cases but we do need to remember that credit is a very useful facility for millions of people.
• Lack of basic money education leading to consumers not making the right choices open to them. Danger awaits when people, who may already be struggling, are tempted by discounts or “interest-free” or “nothing to pay for six months” offers. These consumers may be doing this precisely because they cannot pay in full now and they are simply living in hope that things will be better later. They have not assessed the risks they are taking. Research into this particular group and why they take some of the actions they do is urgently needed.
• Overly keen sales assistants promoting store cards to customers who have little understanding as to how to use them. The offerings of incentives here is potentially dangerous and close monitoring needs to take place on this issue, as well as on ensuring that customers are able to take copies of agreements home with them and be able to change their mind within a reasonable time frame. It could be necessary for non-compliance of these selling procedures to be tightened and possibly even regulated should sales assistants continue not to carry out this role properly.
• It is all too easy to be persuaded to sign up to a store cards but unless you pay off the balance within the interest-free period they are almost never a good deal.
• It can be very tempting to use store cards to get a discount on your shopping bill. However, it is very easy for debts on your store card to spiral out of control.
• The high interest rate is the reason so many consumers are affected by store card debt
• As a general rule we advise avoiding store cards unless you intend on paying of the balance as soon as the store card debt bill arrives. Store card are OK if shoppers are have budgeted to pay off the balance within the interest-free period. If shoppers do not pay off the entire store card debt the interest on the unpaid debt balance will accumulate interest.
• Store card statements should have a bold warning stating what the interest rate is and what they will be liable to pay if they pay part of the whole store card debt balance. We are trying to force retailers and store card providers to illustrate information to providers as clearly as possible.

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Who are the main providers of credit card debt?

The main providers of store card debt need to bring in tighter regulation. The store card industry produces over 20 million cards a year. In 2007 store card debt amounted to over 2 billion pounds. There are around

70 retailers operating store cards. They are mostly department stores and clothing retailers.

The following are most expensive store card debt providers:

• Toys R Us
• Burtons
• Dorothy Perkins
• Laura Ashley
• Miss Selfridge
• Russell and Bromley
• Topshop
• Warehouse
• Oasis

The average store card charges around 25% With an APR at that rate, a balance of £800 would see store card users pay £126.83 a year in interest. A recent study on store card debt from Money Advice Direct found that interest rates were on average 10%-20% too high. Yet more than one year on the average store card APR has fallen by just 0.3%. This is almost 7.7% higher than the average purchase rate on a credit card at 16.6% APR. Interest can quickly add up leading to unmanageable store card debt.

The result of on-going research clearly shows that the store card market does not function in the best interests of consumers. Store card rates have stuck at an average of about 28 per cent for the last few years. A ease of applications of store cards compared to credit cards explains UK consumers’ attachment to store cards

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The store card debt problem in the UK has left a real debt footprint with clients needing advice on the following areas:

Bankruptcy for dealing with store card card debt - Declaring bankruptcy is a major step, and is often seen as a last resort taken by those who can no longer repay their debts. It is likely to mean the loss of all an individuals major assets.

Individual Voluntary Arrangements or IVAs for dealing with store card debt - Individual Voluntary Arrangements or IVAs are another form of insolvency. The numbers of IVAs have grown so much in recent years, that they are approaching parity with bankruptcies. Setting up an IVA with creditors is a popular option and has less effect on a debtors credit report compared to bankruptcy, which makes is easier to gain credit in the future. Let our store card debt help advisers put you back in control of your life.

Debt management plans - you may be able to get a debt management plan which enables you to make one payment a month which is divided up amongst your creditors for you. Make sure you pay all your essential outgoings first.

You cannot force a creditor to accept an offer of payment. But if they can see that you have worked out a reasonable budget plan, and each creditor is getting a fair share of the money available, they are likely to accept. Ask them to freeze any interest to stop the debt growing even bigger.

Store card debt consolidation loans - Loans are a last resort. Secured loans are cheaper and you should be aware that a loan secured on your property puts is at risk.

Informal store card debt arrangements - These are easy to arrange with your debtors and can make you credit card debt free (subject to terms and conditions). There are many companies offering these plans. some should be avoided as they can be pushy. Call 0800 074 6918 for confidential credit card debt help or get credit card debt advice online at www.insolvencyhelpline.co.uk.

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PLEASE NOTE

We are happy for consumers to apply for a store card if it offers some in-store discounts or other attractive perks, but people who are not in a position to pay off their store card bills within the interest free period would be advised to think twice about applying for one.

For detailed advice on store card debt please call 0800 074 6918. There are dedicated advisers available to provide confidential and non-judgemental store card debt advice.

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