According to the National Credit Regulator, the maximum interest rate chargeable by stores for their store cards is 21%. However, three of the stores stated interest rates higher than this maximum threshold upon first enquiry.
Tip: If debt is keeping you up at night you should apply for debt counselling.
Justmoney looked at various store accounts, the interest rates, monthly service fees and initiation fees. The results are surprising.
The below table illustrates the interest rate, monthly service fee and initiation fee of eight different clothing retailers, or groups of stores.
*This refers to any mention that interest is charged on the account and/or other fees associated with the account. None of the brochures or store accounts looked at contained precise details on interest rates and fees in the brochure. This had to be asked for directly from the sales staff in the relevant store.
** All these store cards are managed by RSC. The monthly service fee and initiation fees varying depending on the store card and your credit profile, however, the call centre was able to offer maximum rates.
Analysing the results
The information in the above table was collected by visiting the stores, as well as phoning the various call centres and the PR representatives of the stores.
There was a discrepancy with the interest rates provided by three of the store call centres. Call centre agents for Miladys, Truworths and Foschini all claimed the interest rates charged were higher than the capped 21%.
Following these results, Justmoney contacted the NCR who stated that it would follow up with these stores.
When Justmoney contacted the head offices of these three stores, however, we were informed that the call centre agents were mistaken and that the interest rate for all these stores was 21%.
READ MORE: What information a store should provide you
When Justmoney contacted Truworths to raise the issue of the higher than permitted interest rate, the store apologised for the incorrect information provided by the call centre agent.
“As of the 6 May 2016, new interest rate regulations were implemented regulating the maximum interest rate that may be charged on different types of loans," said Truworths
In relation to credit cards and store cards, the interest rate under the new regulations is calculated using the RSA repo rate plus 14%. Therefore all RSA new accounts opened on or after 6 May 2016 will be charged an interest rate of 21%, they added.
Following the change to the interest rate structure earlier this year, some stores have also introduced a monthly service fee. For example, prior to the interest rate cap of 21%, Edgars did not charge a monthly service fee. However, when the interest rate cap was implemented, the retailer introduced a monthly service fee of R22.80.
The NCR said that reviewed rates are not retrospective. This means that if you opened a store account prior to 6 May this year you could still be charged as much as 25.4%. If you opened an account prior to the new interest rate caps coming into play, you may still be paying that higher interest rate.
Truworths added that prior to 6 May 2016 the maximum interest rate was 25.4% (calculated as the repo rate*2.2+10% = 7*2.2+10%).
In a media statement issued on 5 May 2016, the National Credit Regulator stated that the reviewed interest rate would not apply retrospectively and would only apply to credit agreements entered into on or after 6 May 2016.”
When a consumer applies for a credit limit increase, and if this increase is granted, their interest rate will be revised to the new cap of 21%.
- Make sure you don’t pay any interest: Only apply for a store card if you qualify for the 6 month free interest version. Then, make sure you pay your store card off in full before the 6 month interest free period ends.
- Sort out your credit score: If you have a poor credit score or no credit score at all don’t open a store card until your credit score is good. Stores will typically only offer 6 month free interest cards to those with good credit scores. If you have a bad credit score you are seen as a risk and will only be offered store cards that charge interest rates.
- Close then re-open your account: One way to counteract paying a higher interest rate would be to close your clothing account and then open a new account. From 6 May 2016, the laws around credit agreements and what you could charge in terms of interest rates and initiation fees changed. If you opened a store card after 6 May 2016, then you would be paying far less in interest (up to 21%) than someone who had opened one prior to that date (could be charged as much as 25.4%). However, remember that clothing accounts are a form of debt, and where possible it is better to avoid taking on unnecessary debt and expenses.
- Don’t own a store card. Some view a store card as a gateway to building a credit record. While it is important to build a credit record to allow you to make larger purchases in the future, such as a house or vehicle, for which you will probably need a loan, there are other ways to go about this. For example, a cell phone contract is cheaper and doesn’t charge you interest.
- Don’t overspend on your store card: If you simply must own a store card try to keep spending on it to a minimum. Many stores charge monthly service fees on top of the interest you pay on outstanding balances. With this in mind, it is important to closely monitor any spending you do on a store card.
For more information on how you can build a credit record, click here.