In-Store cards remain costly

FACED with falling sales, retailers are trying to entice customers into their stores with promotions and discounts. But shoppers should be cautious about signing up for retailers' own credit schemes.

In general, in-store credit arrangements continue to offer poor value, with interest rates stuck at stubbornly high levels.

Only the John Lewis Partnership, which has a policy of low interest (currently 23.8 per cent APR) for its store card, has consistently undercut standard Visa and Access rates. Marks & Spencer, which like John Lewis does not accept other credit cards, is also relatively competitive, with an APR of 29.8 per cent, reducing to 26 per cent for direct debit payers.

Other retailers charge substantially more. The Sears group, which includes names like Dolcis, Miss Selfridge, Milletts and Adams, continues to charge up to 38.4 per cent APR on its store cards, falling to 32.8 per cent for borrowings over pounds 750.

Keith Douglas-Jones, managing director of Sears Financial Services, argued that annual fees on Visa and Access cards make direct comparison of APR rates difficult, and added that almost half of his cardholders avoid interest altogether by paying in full each month. Those who do pay interest can reduce the rate to 29.8 per cent by signing a direct debit mandate.

Tony Forni, managing director of Lombard Tricity, the NatWest subsidiary that operates store credit for Dixons, Rumbelows, Allied Carpets and many other retailers, was not optimistic about cuts in interest rates. 'I don't see any immediate likelihood of change. Our rates came down about 4 per cent last year, partly in anticipation of future interest rate cuts which haven't come about,' he said. At 37.6 per cent APR (32.9 per cent for direct debit payments) Lombard Tricity's standard rates are some of the highest in the high street, in part because the company pays commission to the host shop on credit sales.

The use by retailers of third-party finance houses, rather than their own in-house subsidiaries, has grown during the recession. Another large lender, GE Capital, operates store cards for, among others, the Burton group, House of Fraser and Halfords.

Third-party finance provision can improve retailers' balance sheets but debt counsellors have encountered difficulties with the development. 'Any credit arrangement when a third party is providing the credit is always problematic,' Simon Johnson of the Birmingham Settlement money advice centre said, arguing that shop staff may not have any great incentive to ensure that customers are being offered appropriate credit.

His concerns were echoed by Barbara Scholes, manager of the Citizens' Advice Bureau in Wilmslow, Cheshire. She highlighted two recent cases where customers who had thought they were signing simple single-deal credit sales agreements were in fact sold revolving credit budget accounts. 'Shops are not being as clear as they might be. Unless someone knows to ask the pertinent questions they don't get given the answers,' she said.

Store accounts, unlike single loan agreements, are subject to variable interest rates. They also offer the lender the chance of further credit business, tempting cardholders into unwise further borrowing. 'One client bought a hi-fi for about pounds 1,000 and the shop said 'You'll pay this off in three years.' However he now finds, after three years, that he still owes most of the money,' Ms Scholes said. In his case, an additional purchase of a video recorder was added to his account. 'He is paying pounds 43 a month, but only pounds 12 is actually reducing the debt.'

In most cases, it will make better financial sense to stick with Visa or Access cards whenever possible - or to try to beat down the price being charged by offering cash.

-------------------------------------- STORE CARD INTEREST RATES -------------------------------------- Retailer APR Direct Debit -------------------------------------- Argos 37.6% 32.9% Burton Group 33.7% 30.6% Currys 37.6% 32.9% Debenhams 33.7% 30.6% Dixons 37.6% 32.9% House of Fraser 34.4% John Lewis 23.8% Laura Ashley 33.7% 30.6% Littlewoods 38.4% 32.4% MFI 32.9% M&S 29.8% 26.0% Next 36.0% Rumbelows 37.6% 32.9% Selfridges 29.8% 26.8% Storecard 32.9% 29.8% -------------------------------------- Source: Moneyfacts --------------------------------------

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