Store Branded Credit Cards More Expensive For Consumers

This holiday season, a lot of American consumers are going to be sorely tempted to open a store branded credit card, especially when they are purchasing big ticket items. After all, 18 months of no interest payments or a 15% discount is a considerable load off of their payment responsibilities. These are not the only hooks store branded credit cards offer either.

As sales clerks continue to lure in consumers to opening store branded credit cards, it becomes more and more important that consumers learn just how much store branded credit cards end up costing them.

Store branded credit cards are also known in the credit industry as private label credit cards. Compared to regular credit cards, they are more risky and expensive. One expert says that store branded credit cards are essentially the same kind of credit cards that are marketed to subprime borrowers – consumers with bad or non-existent credit histories. In particular, store branded credit cards have the same relatively high interest rates as subprime credit cards. Store branded credit cards could carry interest rates as high as 9% points from the average credit cards.

First Annapolis payment industry advisory firm’s John Grund, a partner of the firm says that consumers don’t usually open store branded credit cards because it has attractive financing offers or a lower interest rate. Consumers usually focus on the first-purchase discount the card brings or the promotional financing schemes typically offered with big ticket purchases.

There is an inherent financial risk of the practice of big retailers offering store branded credit cards. Congress is aware of this and legislation addressing the problem has already been included in the Credit CARD Act. The new rules will require a retailers to collect a more comprehensive set of information from store branded credit card applicants, including assets and income.

However, the rules will only be taking effect on February of next year, 2010. Even then, it isn’t clear if the new legislation will actually have bit considering that retailers are not specifically required to verify the information that they collect from store branded credit card applicants. Retailers have also said that their current practice of quick checking the applicant’s credit score is already enough. They’ve also said that consumers would be uncomfortable giving out sensitive information to their clerks when applying for store branded credit cards.

National Law center staff lawyer, Chi Chi Wu said that the proposed legislation for store branded credit cards does not have enough bit. She said the the Fed is not requiring verification for store branded credit card applicants because they did not want to hinder retailers from allowing consumers to instantly open credit card accounts at the point of sales. That is not a good reason, she says, adding that one of the causes of the financial crisis was the failure of lenders to ensure that consumers could afford the loans that they were given.