Store Credit Cards No Bargain Even With Discount Says Schumer Study

As we rush into the intense holiday shopping season, U.S. Senator Charles Schumer released a study today showing that interest rates charged by store credit cards in New York City are significantly higher than those charged by bank-issued credit cards. Schumer is calling for increased vigilance by shoppers to make sure they are not being lured by ‘too good to be true’ deals in a broad range of stores around the city.

"A store credit card is like a wolf in sheep's clothing," Schumer said. "You might think you're getting a real bargain at the register but just wait until the bill comes. Consumers could be in for an unwelcome New Year's surprise if they fall prey to these high credit card rates. As the holiday shopping season revs up, shoppers must beware of the pitfalls of these high-rate cards."

According to the Schumer survey, several retail stores in New York City offer consumers a modest discount at the register in order to lure consumers into accepting store credit cards. Typically, these retailers knock off 10 to 15 percent on the first purchase. Those savings can quickly turn into a big loss if the customer does not pay off the credit card balance in full each month, or if payments are made late, which results in additional fees.

Schumer's survey of 23 New York retailers includes data on store credit card interest rates and grace periods, including stores selling men’s and women’s clothing, electronics, furniture, and house wares. Almost all of the stores charge rates over 20%, well above the average bank-issued credit card rate of 10-13%.

The highest rate in the survey was found at Sears, which charges 24.15%, on all purchases on its store-issued credit card. Six different stores -- Ann Taylor, Express, Victoria's Secret, Lane Bryant, Abercrombie and Fitch, and Lerner New York – each offer credit cards at 22.8%. Only four of the 23 stores surveyed offered an interest rate below 20% -- Banana Republic, Crate & Barrel, Filene’s Basement, and Kohl’s.

Schumer's analysis showed that, over time, consumers who make purchases on store-issued credit cards can easily pay hundreds of dollars more in interest payments. A shopper who spent $300 using a retail store credit card with an annual percentage rate (APR) of 22.8% and only paid the minimum monthly payment on their Ann Taylor credit card would pay up to $115.28 over 39 months. The average APR for these store-issued credit cards is almost 22%. Shoppers who charged on their regular bank credit card would pay far less in interest.

"You don't need to be Albert Einstein to know that higher interest rates mean bigger bills," Schumer said. "Consumers should be wary of deals that seem too good to be true. When you sign up for a store credit card because you’re getting ten percent off your first purchase – after the bill comes it can turn into a ten percent additional cost if you don’t pay it off right away."

Schumer said that consumers must beware of the high rates and urged shoppers to take steps to protect themselves:

• Shoppers should avoid using store-issued credit cards whenever possible;

• If a consumer is interested in signing up for a store credit card, the consumer should be sure to ask the sales representative about the details of the credit line's interest rate and fees;

• Bills should be paid in full and on-time if customers are to avoid paying exorbitant interest.

Schumer will send a letter tomorrow morning to the Federal Trade Commission (FTC), urging the agency to examine the lending practices of retail credit cards. In the letter, Schumer will ask the FTC to formally recommend specific steps that retail stores could take to protect their customers:

• Retail store promotional material should advertise the store's credit card interest rate and terms as prominently as they display the initial discount;

• Sales representatives should inform consumers verbally of the credit card's interest rate, and explain that the rate is higher than a typical bank-issued credit card;

• Retailers should avoid luring college students and young adults who do not have established credit ratings into accepting store credit cards.

Click here to view study.

posted by Consumer Help Web Editorial Team at 12:51 PM |