This week, consumer minister Ed Davey announced a series of plans to reform and improve consumer credit and personal insolvency. This included high street shops signing a voluntary deal to stop offering discounts to customers in return for store cards.
Currently, around 13 million people in Britain have store cards, which they are tempted into signing up to by introductory discounts on purchases and instant credit. Interest rates on these cards are often sky-high: around 60 times the Bank of England base rate, meaning that consumers quickly find themselves in debt.
Mr Davey said that he was "concerned about customers being tempted" by the discounts offered in return for store cards and so from April next year, retailers will no longer be allowed to offer discounts and free gifts within the first seven days of a store-card account being opened.
Stephen Robertson of the British Retail Consortium 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."
However, the high interest rates that store cards charge, often as much as 30%, will not be capped. Mr Davey claimed that doing so might price some consumers out of the market and force shoppers to use loan sharks.
As well as the new store card reforms, Ed Davey also announced a text alert system for all major high-street banks to account holders who are almost overdrawn. If the customer is about to go into the red, they will receive a text message or email to warn them.
Also, those who do become overdrawn by a small amount may not incur fees if it is for a short period. However, if fees are to be charged, customers will be informed of the exact time charges will be made so that they may top up their accounts and avoid the fees.
Mr Davey said: "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."
However, consumer credit watchdogs claim that the reforms should be more stringent and should be enforced rather than voluntary.
Mike O'Connor, of Consumer Focus, said: "Unfortunately the history of the credit market and financial services shows that self-regulation rarely works. Government must maintain the prospect of formal regulation if this approach is to have a chance of working."
Do you think forcing customers to wait a week to receive store card discounts will help people getting into debt? Have you had problems with store cards in the past? Leave a comment and share your thoughts.
Related links:
Read more on the story (The Telegraph)
Credit and store cards explained (FindLaw)
Find local consumer law solicitors throughout the UK (FindLaw)
I was shopping in Debenhams (Bath) on Saturday and was asked if "I would be interested in opening a store card". The poor girl got it both barrels from me, as I had a Debenhams store card 10 years ago and only just finished paying it off about 4 years ago, so my answer was very firm no. Hopefully I managed to put off the lady at the till beside me too by mentioning how extortionate the interest rates are.
I find it very annoying and intrusive being offered a store card while I'm shopping and can see how people get into debt when such things are offered to them, that's exactly what happened to me. And if you do happen to say yes, the whole store gets to hear your personal details while they check your credit rating on the phone behind the desk.
Why doesn't this new law go one step further and stop store cards being offered altogether. Come on goverment...grow a pair!