press release

Press Release - 08/07/04

SCANDAL OF STORECARD PROMOTIONS AS SUMMER SALES TRAP MORE YOUNG SHOPPERS INTO DEBT

ASTRONOMICAL store card charges threaten to push more and more vulnerable young people into debt as shoppers rush to grab summer sales bargains on the High Street, warns Moneynet.co.uk.

With major retailers charging up to 30 per cent* on their in store plastic - around five times more than the current Bank of England base rate - online financial research analysts Moneynet.co.uk urged shoppers not to be seduced by offers such as 10 per cent discounts on merchandise when opening accounts.

"There has been a lot of adverse publicity about the rip off rates charged by mainstream retailers on these cards, but today's must have now culture means that shoppers - especially youngsters - will find the hard sell pitch to open a store card account tough to refuse," said Moneynet chief executive Richard Brown.

"Racking up debt on store cards at these fantastically high rates is a recipe for disaster - and it can easily be avoided," argues Brown.

"Don't be tempted discounts offered by the stores unless you are confident of repaying the debt immediately. After clearing the balance, in most cases the best advice is to cut the card up to remove all temptation."

The much favoured in store wheeze is to offer a 10 per cent discount for shoppers opening a new account. But Brown says that even by taking advantage of the discount, a typical shopper would still be considerably out of pocket compared to if they had utilised one of the many interest free standard credit card options. Barclaycard for example is currently offering a 12 month interest free deal on balance transfers and purchases which could save around £300 on a debt of £1,000 over one year.

The £5 billion store card industry is currently under investigation by the Competition Commission following a referral by the Office of Fair Trading: the OFT concluded earlier this year that the gap between rates charged on store cards and credit cards "may be more than can be explained by additional costs or the value of other benefits to store card holders."

The in store hard sell commission system rewards shop assistants who persuade shoppers to sign up for a store card - an area where younger shoppers are particularly vulnerable. The OFT probe found that less than a quarter - 23 per cent - of those offered store cards were given the opportunity to take the application form away with them.

"Once you sign on the dotted line that's it - and if you do not clear the debt and allow interest to rack up you could soon find yourself becoming yet another casualty of crippling debt," said Brown.

Enduringly popular High Street names such as Debenhams, Bhs, Dorothy Perkins and Mothercare are among those retailers named and shamed by the National Consumer Council, which found that well over 50 per cent of shoppers are ensnared by the stores' promises of a 10 per cent discount on merchandise - soon negated by up to 30 per cent interest rates.

A recent survey** found that UK shoppers could collectively save around £350 million a year by switching debt from expensive store card plastic to much cheaper credit cards.

While more than 12 million people pack a store card, only just over half of these (53 per cent) clear their monthly balance in full. The result is enormous profits for the store card firms, and potential debt misery for millions.

"Many people clearly do not realise they are paying through the nose for the privilege of carrying this plastic, but with UK Debt plc now set at around £1 trillion and rising, and the High Street sales in full swing, there has never been a more appropriate time to dump the store card and switch to low cost plastic," said Richard Brown.

* Based on a £1,000 balance on a Debenhams card charging 28 per cent APR. The difference over 1 year in interest charged with say a 0 per cent on purchases Barclaycard is over £235 assuming the debt is being repaid at £50 a month. Assuming a 10 per cent discount incentive by Debenhams, the card holder is still £135 out of pocket.

** Sainsbury's Bank survey, May 2004-06-30

Store card villains

Comet 29.9 %APR
Russell & Bromley 28.7 %
Debenhams 28 %
Miss Selfridge 27.6%
Bhs 26 %

- Average household debt in the UK is now £7,000 (excluding mortgages) and £45,000 including mortgages. The average personal unsecured debt for every UK adult is £5,330 (ex mortgages)

- Consumer Credit Counselling Service, the UK debt charity, has already seen calls to its help lines increase by 25 per cent in the first quarter of this year

- Spending on the UK High Street grew at its fastest rate last month for two years

- 20 million cases of unpaid debt have been passed to debt collectors over the past 12 months

- The amount of debt being chased by bailiffs has soared by 70 % over the past two years to a record £5 billion - roughly what the annual store card market is worth

Source: Credit Action, June 2004

PRESS ENQUIRIES

Richard Brown, Chief Executive, 0208 313 9030

David Andrews/Cathy Tully, David Andrews Media Ltd 07941 255855 / 01273 774109 / 07747196854

Consumer enquiries: info@moneynet.co.uk / www.moneynet.co.uk

Moneynet.co.uk is the UK's longest established online personal finance research and data analyst company. The company offers consumers a choice of thousands of low cost financial services products. From mortgages, personal loans to motor, home and medical insurance, credit cards, savings accounts and best buy fixed rate products, Moneynet is one of the most comprehensive online services of its kind in the UK. Founded by chief executive Richard Brown, the Moneynet brand is destined to become one of the UK's major players in consumer finance products.

A DAVID ANDREWS MEDIA LTD - RELEASE FEBRUARY 2005