Melanie Bien: What to buy on a store card: a pair of scissors

Some £4.8bn is spent on store cards each year, even though their high rates haven't fallen

I received a call last week from a public relations person working for John Lewis and Waitrose, who wanted to set up a meeting to discuss a new credit card they are launching. I must admit my first thought wasn't one of enthusiasm: as soon as retail outlets are mentioned in the same breath as finance deals, I tend to think of store cards - hardly renowned for their attractive rates of interest.

I received a call last week from a public relations person working for John Lewis and Waitrose, who wanted to set up a meeting to discuss a new credit card they are launching. I must admit my first thought wasn't one of enthusiasm: as soon as retail outlets are mentioned in the same breath as finance deals, I tend to think of store cards - hardly renowned for their attractive rates of interest.

This is not to say that the John Lewis/Waitrose credit card will be uncompetitive. They have not announced the rate of interest yet and I have no doubt it will have to be fairly reasonable if it is going to attract a generation that is becoming increasingly used to 0 per cent introductory offers on balance transfers and new purchases.

Store cards, though, don't offer anything like reasonable rates. And not all consumers know this, according to the Office of Fair Trading (OFT), because it isn't made clear when you sign up for a store card. If you have one - and I have two, neither of which I use - the chances are you happened to be spending a lot of money in a shop when the salesperson asked: "Do you want to save 10 per cent on your purchase today?"

This is what usually happens: you do the sums quickly in your head and work out you will save a tenner or whatever; the salesperson completes the form and you spend what seems like a lifetime waiting for her to gain authorisation over the phone. By this point you probably wish you hadn't bothered, as a queue is building up behind you, and you should have met your impatient boyfriend outside Tesco 10 minutes ago.

Once you've enjoyed the initial discount, the sensible among you will pay off the balance in full when your statement arrives, cut up the card and send it back to the retailer. But use it regularly - without clearing the balance at the end of each month - and that's when trouble arises. And it is only then that many people realise how extortionate the interest rate is.

The OFT last week referred the supply of store card services to the Competition Commission because, after a mystery shopping exercise, it was concerned about the lack of transparency and clarity on costs and competition. It found that in a third of cases information on the interest rate was not available, while less than a quarter of shoppers were given the opportunity to take away the application form and fill it in at home.

Of course, the hard sell at the till is the result of the commission earned by the salesperson for every shopper he or she manages to sign up to a card. But the OFT found no reason for store card charges to be almost double the rate of interest on a standard credit card. It is hard to see how retailers such as Comet and Laura Ashley, for example, can justify charging a whopping 31.9 and 30.7 per cent interest, respectively, on their store cards.

These pieces of plastic may be small fry in the grand scheme of things, accounting for just 2.5 per cent of total consumer lending, compared with 60 per cent on credit cards. However, that still equates to about £4.8bn spent on them each year. And although credit card and loan rates have been declining over the past few years, the rate of interest on store cards hasn't budged.

It must be hoped that the Competition Commission's investigation will have a similar outcome to the commission's investigation into the sale of extended warranties on electrical goods. This ruled that retailers must not only publish the cost of the warranty, but write to consumers informing them of this cost, and provide greater information on alternatives in the market.

If the same happened with store cards, retailers would have to be upfront about costs, terms and conditions both before consumers sign up for a card and while they are using it.

Unfortunately, there is little chance of the Competition Commission introducing a cap on the charges imposed by store cards, as it held back from doing so with extended warranties - receiving a great deal of criticism in the process. But at least if we are armed with the facts, we will be able to decide for ourselves whether store cards offer value for money. The truth is, they don't.

m.bien@independent.co.uk