The practice of offering in-store discounts in return for a new store card membership is to be banned in 2013.
Store cards commonly come with very high interest rates. Many customers pay up to 30% APR on their store card – a rate which is almost as high as credit cards offered to people with a poor credit score.
A new voluntary code of conduct has been agreed between the banks who market the cards and the government. Retail outlets will no longer be allowed to offer on-the-spot discounts to tempt new customers into taking out a new store card, reducing the likelihood that consumers apply for them in the spur of the moment.
Discounts will only be offered to customers after a seven-day cooling off period, and staff will not be allowed to take commission for sales.
The new measures also encompass changes other financial products.
Overdraft charges will be capped as part of the new rules, and banks will be obliged to offer a minimal ‘buffer zone’ on each account so a customer is less likely to be hit with excessive charges for being slightly overdrawn. It is not yet known how big this buffer will have to be.
Banks will also have to make charges for unauthorised overdrafts clearer; the government predict that well over 8 out of 10 UK consumers will see a difference in their financial situation as a result.
Customers who switch accounts will also see the time for a completed switch reduced to seven calendar days after September 2013, and will have the option of receiving an alert via email, SMS or phone call when their bank balance drops below a certain amount. The alerts will be made available via all major banks from March next year.
The scheme will not affect interest rates offered to store card and credit card customers. It is believed that more people could turn to loan sharks if they are unable to access mainstream products.
