Beware store card cheques

It has come to light that one of Britain’s biggest store-card providers is sending unsolicited cheques to customers by post – with a big catch. If the cardholders cash in the cheques, they will pay nearly 31% in interest.

The company in question is Creation Financial Services, which is the company behind over 50 store cards including such stores as Selfridges, Woolworths, Carphone Warehouse and Faith. They are offering cardholders money in the form of credit cheques. These come pre-printed with the customer’s name and are accompanied by a letter which asks the question: ‘Would you like to boost your bank account with extra cash for the summer?’

It goes on to suggest that you could use the money for garden decking, barbecues, furniture or even book a holiday. It is an enticing prospect for customers who might be looking at other ways to get credit or expand their spending capability in a difficult climate given recent interest rate increases.

Creation cards are owned by over 258,000 customers. Some of them thought something wasn’t quite right when the offer of the cheques came through. Reading the small print revealed how high the interest rates would be. Once paid into a current account, the amount on the cheque would be charged to your store card account, with interest being charged at 30.9% APR (27.8% for direct debit payments). There is also a 2% handling fee. These rates are the same rate as for a purchase on the card and are the highest in the industry.

Industry watchers describe the practice as ‘very worrying’, and stepping outside the realm of what a store card should be for. Store cards are generally meant to be for buying goods directly from the particular store in question. The suggestion from these cheques and associated documentation is that you can use, for example, your high street clothes shop store card to pay for a holiday. Sadly, it seems it is just another way for card providers to make money.

The practice, according to the Finance and Leasing Association (FLA) is not widespread. The FLA represents the store-card industry, and says it will include guidance to providers issuing store cad cheques in an expanded version of its lending code for credit card cheques. Members of the FLA comprise banks, subsidiaries of banks and building societies, the finance arms of leading retailers and manufacturing companies, and a range of independent firms. Facilities provided to members include leasing, hire purchase, conditional sale, personal contract purchase plans, secured and unsecured personal loans, credit cards and store card facilities. The FLA’s mission is to promote an innovative, responsible and proportionately regulated market place, and to deliver value to members by helping them reap its benefits.

The current credit-card cheque code for providers says that they should not send a cheque with the amount already filled in unless a customer has requested one. Neither should they send you a cheque if you are up to or above your credit limit, or behind with repayments.

Creation commented that they had not breached any of the FLA’s code by issuing the cheques in the way that they had done so. They also said that customers were tested for credit worthiness before cheques were sent out to ‘determine the appropriate lending facility’ for each customer. Emphasising that store cards had a lower credit limit than regular credit cards, they said they was no compulsion for any recipient to cash in or use the cheques. This is true, but of course the very fact that they arrive through the door gives the impression that the recipient is encouraged to use them.

A few months ago the Competition Commission finished an enquiry into the store-card industry, and ruled that store-card providers must now print warnings about high interest on statements. The commission says store-card cheques are new to them, but seemed to encourage people to use their cards more. People need to be made aware that interest rates on store cards are generally higher than rates for other types of credit.

Creation Financial Services is a leading provider of innovative credit and customer programmes, and operates credit facilities for UK business partners, now totalling over 230. Its database now consists of over 4 million card holders who are affiliated to the DUET network. This is Creation’s store card network that comprises about 9,000 store in the UK. Creation’s portfolio of point of sale products includes Interest Free, Interest Bearing, Deferred Payment Option and Payment Protection Insurance. Other partners include JJB Sports, Sainsbury’s, H.Samuel, First Choice and football clubs such as Everton, West Bromwich Albion, Wolverhampton Wanderers and Sheffield Wednesday. Creation is the UK subsidiary of LASER – Lafayette Services which is a large loyalty and affinity company that specialises in customer relationship management. LASER has been part of retail, spending and financial services for over 30 years