A store card is a credit card that carries the brand name of a retailer or group of retail stores, and is only accepted in payment for goods or services at branches of those or associated stores.
One of the key aims of store cards is to provide credit to the widest possible range of retail customers, including those who might find it difficult to obtain other kinds of credit.
This means, of course, that card lenders experience a higher risk of defaults compared with credit card providers (who require customers to have higher credit ratings). Store card providers have to set prices on the basis of risk, and the typical interest rates are consequently higher than for some other kinds of credit. To help prevent over-indebtedness, store cards have very low credit limits, starting at around £250.
- 12 million store card accounts in the UK at the end of 2011
- Cards are used on average four times a year
- Average transaction value is around £60
- Credit limits are low; usually start at around £250 limit.
- Average balance on an card is around £130
- Store cards are not used for long term borrowing. The interest paid on the average balance in one month would be just £2.80
- Store cards account for less than 1% of outstanding consumer credit balances (consumer credit includes credit cards, personal loans, store cards, store instalment credit etc)
- More than half of all store cards in issue have a zero or credit balance.
- Customers like their store cards and are happy using them – complaints to the Financial Ombudsman about store cards are just 0.001% of all transactions, lower than for other forms of credit.
All store card providers are regulated by the Consumer Credit Act (CCA) and must hold a consumer credit licence, granted by the Office of Fair Trading (OFT).
The Competition Commission investigated the store card market in 2006. Its main recommendation was the introduction of a wealth warning for store cards that charge more than 25% APR. Every store card statement where the APR exceeds 25% now reminds the customer that they may be able to access cheaper credit elsewhere.
When a customer applies for a store card, they are presented with a summary box that outlines the main features of the card, including the APR, the interest rate, minimum payments, interest free periods and any other fees. A customer may cancel their store card account at any time, and the credit is not secured on their property.
Nearly all providers of store card services are members of the FLA and abide by the additional provisions of the FLA’s Lending Code. This sets out standards of good practice and includes a section specifically dealing with store cards. The Code requires lenders to ‘act fairly, reasonably and responsibly’ when dealing with customers.
In 2011, the FLA and the Government agreed some measures for store card providers which brought in extra consumer protections.
At the end of March 2012, store card providers brought in two measures. The first was that any retail staff offering store cards would not be incentivised by bonuses or commission relating to the cards. The second measure was that any discount offered through the store card could not be redeemed for seven days after the card was taken out.
In September 2012, all store card providers will need to train retail staff offering store using standardised training techniques which will be the same for all providers.
These measures were agreed in 2011. FLA lobbying prevented the Government bringing in measures to cap the cost of credit on store cards, or to impose a complete seven-day cooling-off period on the use of the cards. Both measures would have distorted the consumer credit market unfairly away from store cards.