Store cards discounts scrapped
22 November 2011 10:40
Stores will stop offering discounts to encourage customers to sign up for store cards under a voluntary deal after talks with the Government.
However, there will not be a cap on the rate of interest that can be charged on the cards, consumer minister Ed Davey told MPs. He also unveiled plans for banks to warn customers approaching their overdraft limits to help them avoid extra charges.
In a written statement to Parliament he said people responding to a government review on consumer credit were "concerned about customers being tempted" by stores offering discounts at the time they take out a store card.
"Following negotiations with the Government, industry has agreed to end this practice as well as introducing other measures to improve the way store cards are offered, including a good practice training scheme and a ban on direct commission for sale staff."
The end to discounts being offered within the first week of taking out a card would be brought in from the second quarter of 2012/13, along with the ban on commissions, the British Retail Consortium (BRC) said.
BRC director general Stephen Robertson said: "Introducing a week-long separation between taking out a store card and receiving discounts is a common sense compromise which will give people enhanced consumer protection with access to the benefits those cards provide."
Mr Davey ruled out a cap on the interest rates charged on credit cards, whether issued by shops or banks, warning it could drive people to use loan sharks.
Mr Davey said: "The Government will not be introducing a cap on interest rates on credit and store cards.
"Following the review, the evidence showed that a cap would not be in the best interest of consumers as pricing some consumers out of the market could force individuals to seek unregulated or high cost credit."
Mr Davey said under the new arrangement on overdraft warnings, banks will send an alert to customers to help them avoid going over their limit and incurring an extra charge.
Account holders will also no longer be charged for going over their limit by a small amount.
"Under the new agreement, over 85% of personal current account customers will benefit from measures to make charges for unarranged overdrafts clearer, fairer and more manageable," he said.
Balance alerts will be available from March next year under the agreement reached with Barclays, HSBC, Lloyds Banking Group, RBS and Santander.
Richard Lloyd, the executive director of consumer watchdog Which? said: "Although this is a step in the right direction, we know that people don't trust banks.
"Customers will need to be persuaded that any voluntary agreement to improve overdraft charges will actually deliver the promised benefits.
"It's right that some banks do what they can to stop people going overdrawn, and text and email alerts will certainly help, but banks should treat people fairly and not charge for these services.
"The buffer-zone is also a positive move, but it's essential that we have clarity on whether they apply to basic bank accounts too."
He said unauthorised overdraft charges could incur interest "of over 2,000% APR" and called on them to be included in a review of high-cost credit announced by the Government.
Bristol University's Personal Finance Research Centre has been appointed to carry out research into the impact of introducing a variable cap on the total cost of high-cost credit.
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