In a trawl of ten Cape Town based fashion retail stores that offer store cards, seven out of ten promoters didn't know what the interest rate charges were on the store cards or provided the researchers with the incorrect rate.
Only three shop assistants could correctly answer questions about interest rate charges and fees associated with opening the store accounts. This was slightly better than 2012's survey where only two shop assistants could correctly answer all the questions put to them by the researchers about important details such as interest rates and late payment charges.
"Opening up a store account is an expensive exercise but very few store promoters know or can correctly state what the interest rate charges and fees are. Some stores charge a card maintenance fee; initiation fee and ask you to take out card protection insurance, which they say is compulsory. So on top of paying interest charges (usually 21%) you could pay as much as R178* in fees depending on how you use your card," said Angelique Ruzicka, editor of Moneybags.
There was no consistency with last year's findings. For example: A Woolworths' employee, working at the customer enquiries desk didn't know the interest rate and charges of the card this year, but last year a Woolworths' employee correctly stated the interest charges.
"Some consultants provided us with a figure but these were inaccurate and sometimes higher than the actual rate quoted when we queried the amount with each stores' customer call centres or PR departments.
"Store cards should be avoided if one is not good at managing money. However, if one is disciplined they could work. Some have six-month revolving plans that do not charge interest on one's balances. But if one does not pay one's outstanding amount off within six months then one will be charged interest."
Store cards are expensive compared to other lines of credit such as credit cards. The average store card charges 21%, which is the maximum prescribed under the Regulation 42 of the National Credit Act (see chart below).
"If one is going to take on credit, rather take on a credit card from a bank than a store card. Generally, the interest rate charged on a credit card is much lower than a store card. But like store cards, credit cards also only work if one pays them off in full and if one is disciplined."
She added that the solution to this problem would be increased transparency. "The magazine is calling on stores to show clearly what their rates, charges and insurance costs are alongside any deals that they promote. Perhaps if consumers are more informed they will be able to make better decisions in the way they manage their finances," she concluded.
In December 2013, the researchers went undercover to ten shops that offer store cards at the Cavendish, Claremont, Cape Town. The stores approached included: Guess, Queenspark, YDE, Woolworths, Edgars, Markham, Truworths, Stuttafords, Foschini and Forever New. Researchers asked shop assistants for details of the interest rate and late-payment charges.
After the survey, it contacted PR departments or customer service departments of the stores to find out what the interest rates were. These were the results:
| Current store card APR rates - correct as at 12 December 2013 | ||
|---|---|---|
| Company | APR on purchases (%) as quoted by call centres/PR departments | What store promoters said |
| Guess | 21 | Interest rate is 1.8% per month or 21.6% a year |
| Queenspark | 21 | 1.7% per month or 20.4% per year |
| YDE | 21 | Two months interest free then 22 or 23% interest |
| Woolworths | 21 | Didn't know |
| Edgars | 21 | Didn't know interest charges on 12-month account. |
| Markham | 21 | 21% interest on 12 month account |
| Truworths | 21 | 21% interest on 12 month account |
| Stuttafords | 21 | 0% interest charged on six month account and our 12 month account no longer exists |
| Foschini | 21 | 21.2% interest charged per annum. |
| Forever New | 21 | 1.8% per annum or 21.6% |
*This example was the maximum charges quoted to the researchers when they approached Guess. Guess' initiation fee ranges from R0 - R90 based on credit record scores. A monthly service fee also applies from R28-58 (dependent on the credit one gets) and customer protection insurance from R4 - R30.
For more information, go to www.moneybags.co.za.
