Store cards tackled to restrict debt distress

For years many of our biggest and most popular retailers have encouraged their clients to sign up to store cards bearing their brand. Examples of popular store cards include Debenhams, BHS and Argos.

The offers can be tempting. A 10% discount on the purchase of the goods you are about to buy is bound to be tempting. Money back vouchers are also often promised, again hard to refuse when most people are having to cut back what they spend at the shops. The shop staff are often highly motivated to encourage their customers to sign-up to these store cards. Incentive schemes for staff that are effective in getting customers to take out these cards exist at many shops. The cards aren’t cheap either, with APR’s commonly set around 30%.

Concerns have been growing about the risk that such cards are leading people to fall into debt that they will find it difficult to repay. Such concerns will be confirmed by anyone working in the field of Scottish trust deeds; a protected trust deed in Scotland will frequently include a number of store cards in the list of creditors to be contacted by the Trustee.  

The UK Government picked up on concerns regarding debt and store cards as they have reviewed responses to a recent consultation on consumer credit. For years many working within the field of debt and trust deed advice have pointed out that the temptations offered at the checkout can blind customers to the true eventual costs involved in using store cards for purchases that will not be fully paid for as soon as the bill arrives.

Rather than forcing the issue, the UK Government and the retail sector appear to have worked together to find a compromise that will protect consumers while allowing retailers to continue to promote their services and products. The British Retail Consortium has agreed that from the second quarter of 2012/2013 the following changes will be brought into effect:

• Instant discounts and gifts offered when taking out a card in-store will be ended.
• Similar promotions will be offered only after the card has been held for seven days.
• The customer will gain a seven day cooling off period after agreeing to take the store card.
• Store employees will not receive commission for encouraging people to take out store cards.

There will not be any capping of interest rates. The UK Government believe that this might produce unfortunate results such as pushing people towards higher-cost payday loans or even loansharks.

This news about store cards is accompanied by news that banks have agreed to a voluntary code to make overdraft charges more transparent and fair. Historically such overdraft charges have also been a key player in forcing people into high levels of debt and eventually requiring debt resolution options including trust deeds.

From March 2012 bank clients will get alerts when they are close to incurring charges for overdrafts. A buffer zone will exist to protect people going very slightly over their overdraft limit. An annual statement of charges will be provided.

This code is voluntary. So far Santander, RBS, Lloyds, HSBC and Barclays have agreed to it.

Reducing the temptation for people to get themselves into debt while out shopping, and reducing the capacity of the banks to financially punish their customers for small account transgressions, both appear to be extremely sensible steps in helping people around the UK to protect themselves from getting into a position where their finances are out of control. In the long-run it’s expected that such measures will play their part in reducing the number of people in Scotland suffering from the type of serious debt that eventually typically results in sequestration or a Scottish trust deed.