Store cards have a bad name - from exorbitant APR interest rates to preying on naive women who want the latest item in fashion. But are they all bad?

Despite there being nearly 13 million accounts in the UK, store cards have earned a bad reputation.

They are a form of credit card given out by shops to customers, often offering discounts on in-store purchases.

Store cards usually offer lower credit limits than traditional credit cards but come with very high interest rates.

They are often criticised for their accessibility as you can sign up for one at the checkout and start spending straight away.

Customers are typically lured in by being offer an incentive when opening an account, for example, a one-off discount of 20%.

'Store cards are never good value borrowing'

The average APR on store cards is 25.5%, compared to 16.8% on credit cards, according to Which? Magazine.

The consumer organisation conducted an investigation into store cards in December 2009.

Martyn Saville, senior researcher at Which?, said: 'With APRs of around 30%, store cards are never good value for borrowing.'

'Our investigation into the market found it was too easy to get hold of credit and that too many retailers were offering cards either without telling the customer that they'd be credit checked, or, worse still, without credit checking them at all.

'That's not to mention the lack of privacy in reading out your personal details in a busy high street store.'

So what is being done to help change store cards? In October last year the Department for Business, Innovation and Skills (BIS) launched a review into consumer credit and personal insolvency.

The review is looking at introducing a seven day cooling off period for store cards as well power for a regulator to cap interest rates on credit and store cards. The BIS is scheduled to publish an assessment of the review before the summer.

A problem that doesn't exist?

But not everyone thinks that store cards need interest caps and cooling off periods. The Finance and Leasing Association (FLA) is the trade body representing store card providers. It argues that the new proposals are aimed at addressing a problem that does not exist.

Fiona Hoyle, head of consumer finance at FlA, said: 'There is no evidence of consumers being unable to manage their spending on cards. Customers are already able to change their mind about taking out a credit card. New EU regulation bought in February this year provides customers with an opportunity to change their mind within 14 days of taking out the card.'

'Store cards are not used for long-term borrowing. The interest paid on the average balance in one month is on average just £2.80 and credit limits are usually low.'

Investigation: How much do shops know about their cards?

We decided to test just how clued up shop assistants are when it comes to store cards. We sent Emma Featherstone to Westfield shopping centre, in West London, to visit a few of the retailers to see just how well they performed.

Retail staff are not vetted or trained in the same way that bank employees are, yet they promote these cards. We visited a few of the retailers who offer store cards and spoke to one or two members of staff in each shop. While this may not be exhaustive research it was still interesting to see how much the staff knew about what they were effectively selling to customers.

The results

Debenhams was the best of the bunch, the sales assistant was clued up on not just what a credit score was but how an unsuccessful application would impact on a borrower and harm their credit rating.

Worryingly, in New Look, Emma was taken to the till and offered a card without the sales assistant explaining anything about it.

The Dorothy Perkins assistant was more clued up than other retailers and even explained how customers could use the card to their advantage.

She said: 'Some customers take out the card to use the 10% discount for the first three months and pay for the items before receiving their bill, rather than relying on credit.'

Topshop staff knew the basics but skimmed past important information. Like other retailers the sales assistant did not explain that the representative APR (of 19.9% in Topshop's) case will only be offered to people with good credit ratings. There is also a minimum spend of £250 to qualify for a card.

The sales assistant from Oasis was happy to answer Emma's questions. She skated over some of the issues and instead focused on the benefits of the card, which included a 20% discount incentive on the first purchase when opening an account.

The Warehouse assistant seemed less fazed by the questions but still failed to mention a credit check and the implications of a failed application. However, it was the only store where minimum payments were explained.

Next do not have a store card but the High Street shop has came under fire for performing credit checks on customers making online purchases. We asked Emma to visit a store and see if the sales assistants knew anything about this. The sales assistant denied that any customer using Next online to shop would be subjected to a credit check, despite the Next website confirming that it did.

Store cards: The verdict

The only store to mention a credit check (and the negative impact that an unsuccessful application can have on your score) was Debenhams. In all the other retailers Emma was forced to bring it up herself and even then some of the sales assistants couldn't explain what it was.

New Look came out worst by not offering any information before asking Emma to start the sign-up process.

While the majority of shop assistant were in some way trained it is still dangerous that staff are not up to scratch on the implications of taking out a card. Not to mention the high APR compared to most credit cards.

Off all the shops that Emma visited Warehouse had the highest APR at 29.9% variable, closely followed by Oasis and New look at 28.9% variable.

Anyone who decides to get a store card should make use of the discount (if there is one) and pay it off in full as soon as the bill arrives to avoid paying interest.

We are looking forward to the assessment of the BIS consumer credit and personal insolvency later this year.

Source: thisismoney.co.uk

The amount of consumer debt banks wrote off soared by nearly 25% during the final quarter of 2010, figures showed today.

Banks and building societies wrote off £2.27 billion of debt that people had defaulted on during the three months to the end of December, up from £1.83 billion during the previous quarter, according to the Bank of England.

The increase was driven by a surge in people unable to keep up with their credit card debt, with defaults in this area soaring to £1.18 billion, compared with £740 million in the third quarter.

There was also a 22% increase in cancelled mortgage debts, with £163 million written off during the three months, although the figure was dwarfed by credit card write-offs.

However, there was an improvement in the level of loan and overdraft debt that consumers defaulted on, dropping slightly to £925 million from £959 million.

The increase in the level of total debt write-offs comes after the figure unexpectedly fell in the third quarter after hitting a record high during the previous three months.

Overall, banks wrote off a total of £9.71 billion of secured and unsecured debt during the whole of last year.

Frances Walker, spokeswoman for the Consumer Credit Counselling Service, said: "We are still seeing a high level of consumers coming in struggling with their debts, but most people have lower levels of debt.

"The problem is that, at best, we have households with stagnating incomes and rising costs, and at worse, households that have suffered from job losses and higher costs."

She said the group expected low and middle income households to come under pressure in the coming months due to changes to income tax bands and tax credits, which will be introduced in April.

Figures from the Insolvency Service have shown that a record 135,089 people went bankrupt or took out an individual voluntary arrangement or debt relief order during 2010.

The number of people unable to keep up with their debts is expected to remain high this year, as household budgets come under pressure from hikes to the cost of living, low wage growth and possible interest rate rises.

Source: independent.co.uk

Sleepless nights, unpaid bills, creditors on the telephone: debt can be stressful. And in the current economic climate, it’s a problem that more and more of us are struggling with. But even if your unsecured debts seem insurmountable, there’s an array of measures available that could help you to get your finances back on the right track. None of them is easy and they won’t offer overnight solutions. But used carefully and responsibly, one of them could help you get back in control of your debts – and see the light at the end of the tunnel.

One method that might be worth considering is Debt Management. This is an informal agreement negotiated between you and your unsecured lenders, often via a trained adviser – check out this information to find out how a debt adviser can help. They will look at your income and expenditure, and work out what you can realistically afford to repay, after living expenses. Your debt adviser will negotiate with your creditors on your behalf, asking them to accept lower payments, which can help ease some of the stress of the situation. But you should be aware that, as you will probably be repaying your debts over a longer period, you are likely to end up paying more in the long run. There’s also a possibility that your creditors may refuse to accept the plan – and finally, making lower payments can have an impact on your credit rating.

Another possible course of action is an IVA (Individual Voluntary Arrangement). An IVA is a legally binding agreement between you and your unsecured creditors that normally involves five years of monthly payments. It is administered by an Insolvency Practitioner (IP), who will call a meeting with all your creditors at which the proposed terms of your IVA will be presented. Again, your creditors are not obliged to agree; and towards the end of your IVA, they may expect you to release equity in any property you own to put towards your debts. However, once the process is completed, you will be free of your unsecured debts.

If you’re worried by debt, you’re not alone, and there are ways forward: just be sure that when you choose yours, you make a careful and fully informed decision.

Source: expressandstar.com

Brits should prioritise paying off credit card and loan debts before thinking about savings, an expert has advised.

Justin Modray from Candid Money has advised people to focus on paying off existing credit card debt rather than trying to build their savings pot during the current economic climate.

This advice comes after a report from Resolution Foundation yesterday claimed that middle income families will be £4,000 worse off this year due to low wage rises, benefit cuts, inflation and higher taxes.

And last month a Consumer Confidence Survey revealed that over one-quarter of Brits have no spare cash, the highest figure since records began.

"As public spending cuts and higher taxes continue to take their toll, there's little doubt some families will increasingly struggle to balance their finances," Mr Modray said.

"However, the high rates of interest charged by many credit cards will persist, so managing expensive debt should really be the financial priority for most households."

Source:  uswitch.com

Over 200 Derry homeowners per month are seeking help to deal with mortage defaults and home repossessions.

The Citizen’s Advice Bureau in Derry deal with 60 requests for assistance per week from clients, “worried about losing their home, who have significant arrears or have already received notification of a repossession order being granted,” the Journal has learned.

The news comes after one of the UK’s leading mortage companies HML estimate a total of 2,540 homes are set to be repossessed across the North in 2011.

The company released the figure after a study of 320,000 live mortgage accounts.

The worrying situation is faced by Citizens’ Advice Bureau (CAB) Money Advice Supervisor, Liam Doran, on a daily basis. Mr. Doran described the recent rise in mortage difficulties as “unprecendented.”

The DETI-funded Dealing with Debt service handled over £2.5 million of mortgage debt, (NI wide) an increase of over 100% from the third to the fourth quarter of 2010.

“We are seeing more and more problems directly due to the cut in the interest rate support by Social Welfare. It was reduced to 3.63% in October. Help with mortage interest payments means more and more people are sliding into arrears.”

Mr. Doran continued: “We have also seen shortfalls between the original mortage and the resale value ranging from £1,000 - £130,000 in the past 12 months.

“When the house is sold, the client is still liable for the unsecured shortfall. Due to the high value of the shortfalls most people are forced into bankruptcy as they cannot afford to pay it back.

“This makes no sense whatsoever, if the banks and courts are evicting people from their homes they are then entitled to housing benefit support. That housing benefit is of a higher value than mortage interest rates.

“In the past four months from Nov 2010 we have dealt with £1,115,000 of mortgage related debt in Derry CAB alone. This is an unprecedented increase.”

In 2009/10 there was 5.4 million shortfall in mortage arrears as dealt with by CAB NI wide.

According to HML’s ‘Regional Repossession Forecast’: “Northern Ireland is expected to experience the worst rate of repossessions in the UK, with repossession rates significantly higher than other (UK) regions.”

Liam Doran added: “We feel that due to ongoing economic factors such as unemployment, public sector cuts, lack of activity in the housing market and reductions in benefits that the situation will continue to worsen over the next 12 months.”

If anyone is having problems with their mortgage payments, are facing repossession or have any other debt problems we would advise them to seek help sooner rather than later from the CAB.

They can be contacted on 02871370337 or on lderrymoneyadvice@citizensadvice.co.uk

A client of Derry CAB is a single parent with one child and her property is in negative equity.

She was getting help with her mortgage interest payments through her benefits but due to the reduction in the interest rate her monthly payments have increased from £85 to £200 per month.

She has now received notification for repossession from her mortgage lender. She came to the bureau for help on what to do if her property is repossessed and there is a shortfall.

The client has been forced into repossession by the reduction in the interest rate used to calculate help with mortgage interest payments through the benefits system.

Once the property is repossessed the client will have to go to the Housing Executive to get re-housed at a significantly higher cost to the benefits system than the help she was receiving through the Mortgage Interest Scheme.

Source: derryjournal.com

The MBNA bank has been accused by a High Court judge of "torturing" a customer with repeated phone calls demanding he repay his credit card.

Keith Harrison had his debt of £20,270 written off by the judge, Nicholas Chambers QC, at Mold in North Wales.

The judge said MBNA had failed to give Mr Harrison the terms and conditions for the card, when he took it out.

MBNA said it was reviewing the comments and said it had been unable to have "meaningful dialogue" with Mr Harrison.

"[We] were unable to ascertain the reason for non-payment," the bank added.

The judge denounced the tactics that MBNA and its debt collection firm had used to force him to pay up.

"In my view, the claimant rightly complains that, mainly by MBNA but also by the defendant [debt collectors Link Financial], he was hounded by telephone calls seeking payment of what was said to be due," said Mr Justice Chambers.

"The calls were a form of torture oppressively frequent in amount and often without attribution to an identifiable number."

Improper conduct

The judge was scathing about the non-traceable phone calls which both MBNA and Link Financial - who bought the debt in 2008 - had used to try to recover the debt.

"It seems to me that such conduct has no proper function in the recovery of consumer debt," Mr Justice Chambers said.

"[There] can be no excuse for conduct of which it must be supposed the sole purpose must have been to make the claimant's life so difficult that he would come to heel.

"I cannot think that in a society that is otherwise so sensitive of a consumer's position this is conduct that should be countenanced," he added.

Link Financial blamed Mr Harrison, from Devon, for being uncooperative and said its own approach had been "both proportionate and reasonable".

A spokesman said: "We attempted to contact Mr Harrison 18 times over a period of 12 months, as Mr Harrison acknowledges himself through his own records."

"Although all those calls were unanswered, answerphone messages were left with a polite invitation to call us together with a contact telephone number.

"Mr Harrison declined to do so," the spokesman said.

Total Failure

Mr Harrison, a 51-year old businessman, took out the card in 1998, after responding to a mailshot sent to five million people.

From 2007 he ran into financial problems, ran up a large debt and stopped making any repayments.

In court he argued that, contrary to the explicit requirements of the Consumer Credit Regulations 1983, the bank had failed to send him the necessary terms and conditions for his card, either when he applied for the card or when it was issued to him by post.

MBNA said it would have done so. But the bank could not prove to the court that this had occurred.

"I find that neither with the application pack nor with the card was the claimant sent the MBNA terms and conditions," said the judge.

"It is perfectly clear that the legislature regards it as desirable that such documents should be provided.

"It seems to me that a total failure to supply the required documents will prima facie call for some reaction from the court," he added.

'Tricks'

Marc Gander of the Consumer Action Group (CAG) was delighted with the ruling.

"This is a real message to anyone else who tries the same tricks," he said.

Some financial firms, including mortgage lenders, have been criticised for over aggressive attempts to force defaulting borrowers to pay up.

Last December MBNA agreed to improve the way it dealt with customers struggling with debts.

The Office of Fair Trading (OFT) had criticised the operation of the lender's in-house debt collection department.

It had been failing to let customers know if offers of partial payments, to start paying back debts, had been accepted.

Source: bbc.co.uk/news

A QUARTER of Brits fear soaring living costs and Britain’s crippled economy will leave them £2,500 worse off this year.

They believe they will be out of pocket by £50 a week, while half are ready to take a £25 hit.

A third worry they will struggle to make ends meet in the face of rising debt and the painful squeeze on household spending. And a generation of workers have given up trying to buy a house or start a family because times are so hard.

Experts say people will need a 75% pay rise to enjoy the same lifestyles their parents had when they were younger.

The bleak forecast was issued in a consumer survey that blamed runaway inflation, sky-high energy prices, pay freezes and soaring fuel bills.

More misery will follow when David Cameron’s cuts begin biting in April and interest rates are raised, after warnings by Bank of England Governor Mervyn King.

The poll was carried out by online education firm Learndirect as inflation soared to 4% in January.

Despite having to cut back, one in three families admitted they are hopeless at managing cash.

Learndirect’s Jasmine Birtles said: “We all know times are tough and money is tight after the recent rise in VAT, as well as surging petrol and energy prices and other increases in the cost of living.

“People need the confidence to make good financial decisions, but this research shows that many don’t think they have the right skills to do that.”

John Rhodes, of Citizens’ Advice, said: “We are seeing more and more people coming to us for debt advice and with money worries.”

The average worker in their 20s earns £25,500 but would need £44,600 if they were to marry, buy a house and start a family.

More than 40% expect their debts will rise over the coming years and 60% fear they will be worse off than today’s 50-year-olds when they reach the same age.

Source: dailystar.co.uk

The £27m of funding for debt agencies such as Citizens Advice isn't enough to support current levels of service, never mind deal with the expected increase in cases

The short-term reprieve for debt advice announced by the government last week is a welcome recognition of the valuable work these advisory services do. But the £27m of funding over the next year is nowhere near enough to maintain even the current level of advisory services, let alone cope with the expected dramatic increase in debt and other consumer problems as the impact of public sector and other job losses, benefit cuts and a rise in borrowing costs hits home.

I am a volunteer adviser at my local Citizens Advice bureau one day a week. We seem to be one of the lucky ones in that, so far, our local authority has not cut our funding, although support we receive from other charities and organisations is precarious. I would like to nail three common misconceptions about the impact of funding cuts for Citizens Advice bureaux and other voluntary organisations.

First, Citizens Advice advisers may be volunteers, but that doesn't mean we are free. I can only do my job because I have access to AdviserNet, a national computer database maintained by Citizens Advice, which outlines legal and other regulations on the kind of problems our clients come to us with. On most occasions I will have to make phone calls or write letters on behalf of clients. All these services cost money. Our receptionists and many of the office staff are also volunteers, but we need paid staff to act as supervisors, managers and fund raisers.

Bureaux like Birmingham have been forced to close their doors and offer a purely telephone-based advisory system. The second misconception is that this is an acceptable alternative to face-to-face advice. It is not. Of course, some problems can be quickly resolved over the phone, perhaps by signposting clients to our website or those of other organisations which provide free advice.

But many of the most vulnerable people, who are disproportionately represented among our clients, do not have access to computers nor the wherewithal to go online at their local library (assuming this stays open), far less interpret any information they do manage to find.

Someone who is being threatened with homelessness or who has had bailiffs knocking at the door threatening to take away their furniture will already have ignored many opportunities to telephone the authorities to explain their circumstances. What they need is someone to do it for them. That kind of thing is difficult, if not impossible, to arrange over the telephone.

Then there are the illiterate or those who speak little or no English who need us to fill in forms or interpret letters. Try doing that over the telephone.

The third misconception is that regular volunteers can take on the burden of offering debt advice after the face-to-face funding runs out. I can, and do, advise people on how to deal with their debts. But for many debt clients, sorting out their financial problems means writing dozens of letters and dealing with dozens of phone calls as budgets are drawn up, offers made, and creditors contacted. Some clients can manage this on their own, but the vast majority cannot.

Nor, however, can volunteers. We work perhaps one day a week and are there to deal with the current crop of clients. If we had to deal with telephone messages, letters and so on from old debt clients, we would have no time for anything else. And, of course, writing all those letters and making phone calls costs money, which most bureaux simply do not have.

David Cameron would be welcome to visit our bureaux to see how much effort our volunteers put in to helping solve what seem like intractable problems to clients. That should also make him aware that the 'big society' will only work with adequate funding.

Source: guardian.co.uk

Tuesday 15th February, the 45th day of 2011 marks the annual ‘Debt Freedom Day’. British consumers have now earned enough to pay off the interest on their debts for 2011, five days ahead of last year.

Dubbed ‘Debt Freedom Day’, it’s the first day of the year when the interest payable on debts, becomes equal to average earnings freeing lenders from this outgoing. This allows a statistic to be presented, showing how many days the UK consumers have taken to pay off the interest on debts. The figure varies annually depending on national debt levels, earnings, interest rates and willingness of lenders to lend.

In 2007 consumers had earned enough to cover interest costs by 1st February, in 2008 this jumped to 10th March, and in 2009 it moved to 25th March even later than the previous two years. During the tail end of the recession in 2010, due primarily to the unwillingness of high street banks to lend, and consequently less borrowing and debt, Debt Freedom Day was announced on 10th February.

The figure for how many days it takes consumer to pay back interest costs is calculated by taking the average interest payment, on outstanding unsecured loans and credit card debts and dividing this by the average person’s daily earnings. Even though the day on the calendar arrives prematurely this year, it is not necessarily an indicator of increased financial stability.

Hayley North, Managing Director at Wellers Wealth Management Ltd said:

“The consumer is worried about the future near-term. Few have been given pay rises, many are at risk of losing their jobs and with interest rates at all-time lows they are choosing the cautious path of repaying debt while they can and trying not to borrow any more than they need. It is easy to underestimate how frightened people are. Prices are rising but pay packets are stable or shrinking. Unsecured debt is still readily available and this is still a popular option for households keen to minimise interest costs and large financial outlays”

On the surface it appears that borrowers are getting on top of their debts, but the earnings amounted in the 45 days taken this year to reach Debt Freedom Day simply cover the interest payable, the total debt itself is yet to be paid.

Paul Clarke of MoneyTools, said: As households repair their balance sheets they adjust household expenditure accordingly and part of the focus then becomes repaying debt as they feel less wealthy and secure about the future. As interest rates are at historical lows capital is being used to repay more of the debt.

Debt has been like a drug over the past decade and households have to wean their way off it. Those that have adapted quickly will be repaying debt and repairing balance sheets. Those that are still addicted will still be plugging the gap between expenditure and income through credit cards and unsecured debt.

Research carried out by the professional advice website, unbiased.co.uk has revealed the extent of the nation’s debt problems. They found that credit card debt has reached over £58 billion, and £120 billion in personal loans have been heaped up by consumers. With the average rate of interest charged on credit cards in 2010 climbing to 16%, the soaring national debt levels are hardly surprising.

According to statistics released by The Insolvency Service, in the fourth quarter of 2010 there were 30,729 individual insolvencies in England and Wales. This sees a 13.6% reduction, from the same quarter a year ago. However in 2010 overall, there were 135,089 individual insolvencies in England and Wales, an increase of 0.7% from 2009. The Insolvency Service has reported that the 2010 insolvency figures are in fact the highest since records began in 1960.

Karen Barett, Chief Executive of Unbiased.co.uk, said: “With debt levels still remaining at extreme highs there is no better time for people to service their debt and get back in control of their finances. Debt Freedom Day is not only to remind consumers of how much of their hard earned cash they shell out just to pay off the interest alone but to highlight the need to take action now and seek advice.”

“Rather than worrying about it and letting their personal finances spiral out of control, people should instead pro-actively manage their finances and get advice from an independent financial advisor who will help them make sure they are making the right choices according to their financial situation. An IFA can help consumers to make their money work as hard as possible and balance their finances to repay back any debt as quickly as possible.”

So how in 2011 have consumers managed to free themselves of the interest compounded on their debts five day ahead of 2009. The recent figures present a two-fold explanation, it’s possible that borrowers are becoming more aware of the need to manage their debts, but the unwillingness of banks to lend could also be halting them from taken out secured loans, thus disabling debts from mounting further.

Source: debtmanagementtoday.co.uk

The number of people contacting a debt advice charity for help online doubled during January as growing numbers of people struggled to keep up with their borrowings.

The Consumer Credit Counselling Service said a total of 8,591 people used its online CCCS Debt Remedy tool during the month - twice as many as in December and more than during any month of 2010.

The rise was far greater than the increase in the number of people contacting the charity by telephone, with people seeking help in this way rising by 63%.

The group is predicting a big increase in the number of people unable to keep up with their debt during 2011, as the impact of high inflation and rising taxes take their toll on household budgets.

Overall, a total of 65,825 people used the online service during 2010, while 287,120 people sought help by telephone.

But despite the greater popularity of its telephone service, the group expects its online facility to see a bigger increase in usage during 2011, as people opt to get advice on their debts from the privacy of their own home, at a time that suits them.

CCCS pointed out that as Debt Remedy is available 24 hours a day, people who wake up at 3am worrying about their financial situation can log on to get immediate help.

However, the group is also worried that the popularity of its online service will in part be driven by uncertainty over the future of free face-to-face debt advice.

The Government announced last week that it was setting aside £27 million to ensure that consumers struggling with debt could continue to get free face-to-face advice during the coming year.

The new money came after 500 specialist debt advisers had stopped taking on new cases because the Treasury had decided to close the Financial Inclusion Fund, which had previously paid for the service.

Source: Press Association