Store cards could have their interest rates capped at 25%, under plans unveiled by the Conservative Party.
Shadow Chancellor George Osborne says a Conservative government would clamp down on retailers whose store cards carry “exorbitant” interest rates of over 25%.
The opposition party also plans to introduce a seven-day cooling off period for store cards, if it is elected to power at the next general election. This means that people who sign up for store cards would not be able to use them for one week.
In addition, the Office of Fair Trading would be given new powers to penalise shops that apply excessive interest rates to their store cards.
There are around 13.4 million store card accounts in the UK, double the number from five years ago. Last year the Competition Commission completed its investigation into store cards, concluding that APRs are around 10% to 20% too high, causing consumer detriment of at least £55 million a year.
Osborne said: “While many people borrow responsibly, there are a growing minority who struggle to pay their loan bills. With the cost of living rising, that is likely to get worse. We need to take steps now to deal with the current problem and make sure that in future we don't repeat the mistake and let Britain become hooked on debt.”
He also slammed retailers whose store cards abuse their “monopoly position” by charging excessive rates interest.
“Another sensible step is for a cooling off period of seven days between when you apply for a store card and when you can start spending on it, so people have a chance to pause and think about the debts they're running up,” Osborne added.
Burtons and Dorothy Perkins currently offer the most punitive rates of interest on store cards, both charging APRs of 29.9%, according to Moneyfacts. In contrast, Evans’ store card has an APR of 17.9%
Samantha Owens, head of cards and loans at Moneyfacts, says that although store cards do offer benefits to shoppers – such as discounts or vouchers – many people take them out without really considering the consequences.
“A seven-day cooling off period is a good idea, especially as less financially aware shoppers tend to be the ones that take store cards out. However, capping rates just on store cards poses some difficulties, especially as credit cards can have APRs of over 25%.”
Store cards are not the only financial product to feel Osborne’s wrath – he also proposes changes to the way credit card providers bill customers, suggesting that they should be forced to explain the financial cost of only paying the minimum repayments each month.
He also called for new laws to prevent the “unethical marketing” of Individual Voluntary Agreements and for more competition in the home credit market.
The Conservative Party also plans to launch a free national financial advice service, providing impartial and independent guidance on financial issues via face-to-face sessions, telephone advisers and online information. The Labour government is currently looking at providing free generic advice to consumers.