Complaints about store cards double in a year as shops charge rip-off interest rates
Shoppers are being warned of the dangers of racking up long-term debt by being tempted into opening store cards just to get a discount at the till
COMPLAINTS about store cards - which charge shoppers up to 40 per cent interest - have almost doubled in the past year and the figures are being blamed on sales staff trying to "flog as many as they can".
Consumer rights website Resolver received 2,376 complaints about store cards in the last financial year, up by 98 per cent from 1,198 a year earlier.
Store cards are another form of high cost credit and The Sun wants to help people trapped paying back high amounts of interest by capping the total cost of credit on other products, such as rent-to-own agreements and doorstep loans.
The surge in card complaints is down to two factors, an increased awareness among people about their right to make a complaint as well as pressure on staff to flog cards to customers, according to the website.
Shops tempt customers to take out store cards with discounts but many are left paying off the minimum amount for years and can pay back hundreds of pounds extra.
According to data compiled by The Sun, a pair of skinny leather trousers from TopShop which originally cost £225, would end up costing £383 if repaid using the minimum amount over 6 years and 5 months - a massive £158 extra.
While a rug from Very.co.uk, which originally cost £99, would end up adding up to £147 if you repaid the minimum amount over 2 years and 6 months - a total of £50 extra.
And a lamp from Next which originally cost £400 would end up costing £95 extra in interest if repaid over two years and one month by making the minimum repayments.
High street and online shops charge customers up to 40 per cent interest but the small monthly repayments make the cost of buying the latest pair of shoes or new sofa seem affordable.
And Martyn James, spokesman for Resolver, explains tempting deals offered at the till to customers often push shoppers into signing up.
Why we want to Stop The Credit Rip-Off
WE never want you to pay more than double the amount you've borrowed - whether it's for a new sofa or a loan to help pay your bills.
That's why The Sun has launched a campaign calling for a cap on the total cost of rent-to-own loans and doorstep lending at double the original price or loan amount.
A similar cap was introduced for payday loans in 2015 and since then the number of people struggling with unmanageable debts to those lenders has more than halved, according to Citizens Advice.
People on the lowest incomes, living in the poorest places, are paying a poverty premium – up to 7 million people have resorted to high-cost credit, according to the Department for Work and Pensions.
People whose wages or benefits don't stretch far enough need to borrow from rent-to-own or doorstep lenders to help pay for things such as an unexpected bill or to furnish their homes.
These come with exorbitant rates of interest – more than 1,500 per cent in some cases of doorstep lending.
It is scandalous that one mum who borrowed cash to help keep a roof over her family's head and ended up paying back over THREE times the original amount.
It's time to stop the credit rip-off.
Here's what we demand:
Rent-to-own
- Cap on all repayable costs at double the item list prices (including fees, add-ons and interest)
- Ban on incentives for all sales staff
- Ban on discounts for existing customers to tempt them into more credit
- Companies to publish example interest rates and costs on all payment options
Doorstep lending
- Cap at double the original amount borrowed
- Stricter affordability checks
- Ban on discounts for existing customers to tempt them into more credit
He said: "Most stores now flog you a store card on the understanding that you get 10 to 15 per cent off your first purchase - including what you're buying that day at the till.
"This clever little technique disarms the consumer who might question the value of a store card otherwise.
"It also works on the basis that people have the best intentions when it comes to paying things off, but most of us struggle or forget - and end up paying the interest."
The Warehouse store card, for example, charges an interest rate of 29.9 per cent APR.
If you only make the minimum repayment of £5 a month, a £100 dress ends up costing £129.45, she says.
See how other high street brand's store cards stack up against each other in the table below.
Over 4million Brits make minimum repayments on credit cards, which can lead to a lifetime of debt.
Figures show that customers in persistent debt pay on average around £2.50 in interest and charges for every £1 that they repay of their borrowing.
Store cards versus credit cards
Store cards work and feel very much like credit cards, except that while credit cards can be used anywhere, store cards can only be used in a specific store or store group.
Don’t confuse store cards with store-branded credit cards such as those offered at retailers such as Tesco, Sainsbury's, Asda, John Lewis, Marks & Spencer - these can be used anywhere and often have loyalty schemes attached.
But with a store card, the real sting for shoppers is in the amount of interest that comes with these cards.
It's time to Stop the Credit Rip-off.
Figures from Martin Lewis's Moneysavingexpert.com show that around two-thirds of the major store cards on the market charge over 25 per cent interest, some are nearly 30 per cent.
“Shoppers might feel persuaded to get a store card because of the upfront discounts on offer, but they should never assume they are getting a good deal overall,” said Rachel Springall from Moneyfacts said.
“Currently, the lowest interest rate on a normal credit card is just 5.9 per cent APR with Tesco Bank."
That makes the a store card with 40 per cent APR more than six times more expensive.
'My store card debt was the beginning of a serious debt problem'
MUM of four Gemma Oakes, 36, from Manchester, says store card spending was a slippery slope to problem debt.
She and her bus driver fiance Daniel, 36, also from Manchester, ended up owing more than £20,000 and the family's only way out of seemingly never-ending interest charges was to accept help from Gemma's mother. She took out a loan to clear their debt.
Gemma's debt started off with around £200 on a New Look store card 15 years ago, which she opened while working full time as a hotel receptionist.
She told The Sun: “I opened the account because they said there was money off when I got to the till.”
She thought it seemed like a good way to get a discount and spread the cost.
But before long, and after losing her job as a hotel receptionist while pregnant with her first child Lucie, now 12, she soon found herself turning to other forms of credit.
She added: "No-one would give me another job while I was pregnant and after my daughter was born I couldn't find work that would cover the cost of childcare and the bills were creeping up."
The couple gradually ran up more debt as they struggled to cover the cost of family life.
They took out an Argos store card for some household items and Gemma says they initially put more on the card than they needed to in order to qualify for the discount offered for spending a minimum of £150.
But with money tight, they found themselves only making minimum repayments and increasing their debt by having to resort to more and more credit.
Catalogue credit from Very and Littlewoods followed the store cards, as did credit card debt.
A cheap scond-hand car that kept needing costly repairs and multiple credit agreements for household essentials including a fridge and tumble dryer from rent-to-own company BrightHouse only made things worse.
"It's easy to judge people for getting into debt but until you know what it's like not to have cash in your purse to buy something then you can't understand what it's like.
"My fiance works, we always paid our bills and debt repayments on time but the interest meant we couldn't chip away at the actual amount we spent."
The Sun's Stop the Credit Rip-Off campaign is calling for a cap on the total cost of credit charged by rent-to-own firms such as BrightHouse. Find out more here.
Applying for a store card hits your credit score
As with normal credit cards, applying for several store cards can have a negative impact on your ability to obtain new credit.
Each time you make an application, a search is added to your credit file and too many in a short period of time can bring down your credit score.
“Store cards should offer what other regulated credit agreements do, like a mortgage, where it shows the amount you must pay over the course of the term," said Jamie Smith-Thompson, managing director of Portafina, the financial advice firm.
"Yes, stores disclose the APR that their cards have, but are people really aware enough to calculate what that percentage means in pounds and pence?”
How to protect yourself
“A general rule for store card users is to grab the discounts, pay off the balance in full and then cut up the card whilst closing the account to get the biggest perks and avoid paying high interest,” said Springall.
But be cautious when making an application. It is vital to do the maths in advance to determine whether the perceived discount is worth it.
Don’t apply if you know that you will be looking for new credit soon after, as the store card application can have an impact on your approval.
These other forms of “borrowing” that can be affected include a contract mobile phone, car or home insurance, as well as loans, mortgages or credit cards.
Have you ever had a problem with a store card, rent-to-own firm or doorstep lender? Tell us your story! Email: [email protected]
Savvy shoppers who like to score discounts and freebies should be mindful to spread your applications out over a matter of months and cancel any cards that are no longer needed and debt free to keep your credit file shipshape.
Don’t simply cut up the card, always call the provider and officially close your account. This is the only way for it to be removed from your credit report.
LATEST FROM STOP THE CREDIT RIP-OFF CAMPAIGN
“Store cards can often appear to be very attractive, luring you in with discounts, freebies and other benefits,” said Justin Basini, chief executive of ClearScore, the credit checking company.
“Consider setting up a direct debit to make sure the card bills are always paid on time.
"That way, you’ll set your mind at rest that you’ll never miss a repayment and won’t negatively impact your credit score.”
Could you cut your store card debt with a balance transfer credit card?
If you have found yourself with a large balance on a store card, don’t panic – but make sure you're not paying interest unnecessarily.
If you have a good credit score and repayment history, you could use an interest-free balance transfer credit card.
Move the store card debt to it and it could save you hundreds of pounds.
To find a card that suits your needs, try a comparison website such as Moneyfacts.co.uk, Moneysupermarket.com or uSwitch.com.
Before you make an application, check your eligibility with the soft-search tool from .
A soft search lets you check what credit deals you’re most eligible for without affecting your credit score.
The search it leaves on your credit file can’t be seen by lenders, so won’t affect their decision. This can stop you applying for the wrong products and harming your credit record in the process.
Opt for the card with the lowest transfer fee for the period in which you are certain you can repay.
The typical is free is 3 per cent of the balance being moved so always weigh up the cost of moving your card debt.
Before getting a card with a fee, work out if you could clear the debt quicker to avoid it.
If you’re uncertain, play safe and go for a longer term – after all, a transfer fee is better than paying higher interest later.
But once the debt has been moved, don’t get complacent, ensure that you then pay it off in full before the interest-free balance transfer period ends.
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