UK: Competition Commission publishes final report on store cards

Last Updated: 13 March 2006
Article by Paul Edmondson and Nick Paul

On Wednesday the Competition Commission (CC) published its final report on store cards and the sale of related PPI.

The Commission confirmed its provisional conclusions reached in September 2005 that there is an adverse effect on competition in connection with the supply of consumer credit through store cards and associated insurance in the UK.

The CC found that there is a combination of features which prevent, restrict or distort competition in that market and has suggested remedies to tackle these concerns. The Commissions findings can be divided into two categories, those that deal with store card credit and those that deal with insurance services.

The concerns over PPI highlighted in the report overlap with those identified in the FSA's thematic work on PPI published in November 2005.

The findings and outcomes from both the CC inquiry and the FSA work will play a key role in influencing the direction of the Office of Fair Trading (OFT) work on the Citizens Advice (CitA) super­-complaint about payment protection insurance, the scope of which will be announced soon.

To view the article in full, please see below:


Full Article

On Wednesday the Competition Commission (CC) published its final report on store cards and the sale of related PPI.

The Commission confirmed its provisional conclusions reached in September 2005 that there is an adverse effect on competition in connection with the supply of consumer credit through store cards and associated insurance in the UK.

The CC found that there is a combination of features which prevent, restrict or distort competition in that market and has suggested remedies to tackle these concerns. The Commissions findings can be divided into two categories, those that deal with store card credit and those that deal with insurance services.

The concerns over PPI highlighted in the report overlap with those identified in the FSA's thematic work on PPI published in November 2005.

The findings and outcomes from both the CC inquiry and the FSA work will play a key role in influencing the direction of the Office of Fair Trading (OFT) work on the Citizens Advice (CitA) super­-complaint about payment protection insurance, the scope of which will be announced soon.

Store card credit

The Commission has decided on the following actions:

  • full information on statements, including:
- the current annual percentage rate (APR) applicable to purchases;
- an estimate of interest payable next month in the event that the cardholder only makes a minimum payment;
  • APR warning on store card statements where the APR is 25 per cent or more;
  • provision and prominent display of facility to pay outstanding balances by direct debit.

These remedies aim to combat the following concerns:

  • most store cardholders who take credit pay higher prices for that credit than would be expected in a competitive market; and
  • a lack of transparency in the provision of store card credit leads to cardholders taking credit on terms which are not clear to them.

Insurance services

On 14 September 2005, the CC issued a remedies notice which invited comments on the actions that might be taken by the CC, or recommended for implementation by others, to remedy, mitigate or prevent the adverse effect on competition (AEC), or resulting detrimental effects on customers, as identified in its provisional findings of the same date.

In the light of evidence resulting from this notice, the CC published a Statement of Provisional Decisions on Remedies on 20 December 2005 (Provisional Remedies) which set out the CCs provisional decisions on remedies together with their supporting reasoning.

The CC provisionally decided that where store card providers offer PPI packages, they should also offer payment protection cover and a package of purchase and price protection as separate items. This arrangement should provide greater choice for customers to tailor insurance to their requirements. Customers would also be able to compare payment protection cover more readily with the open market alternative of income protection cover as a result of this arrangement.

However, in their final report the Commission has taken a backwards-step on unbundling. They have decided that there will be no requirement to offer either purchase or price protection insurance as separate elements, as they acknowledge that these elements do not currently have readily available alternatives on the open market. Moreover, they accept the views of retailers and providers that a requirement for full unbundling would also significantly increase the costs and complexity of implementation such that any benefits cardholders might gain through increased choice might be outweighed by higher costs to them.

Therefore, where store card providers offer:

1. insurance packages containing payment, price and purchase protection, they must also offer, as separate items:

i) payment protection cover alone; and

ii) a package of price and purchase protection.

2. a package of payment and price protection or payment and purchase protection, they must offer payment protection alone as a separate item. There will be no requirement, in those circumstances, to offer either price or purchase protection as separate elements.

These remedies aim to combat the following concerns:

  • most store cardholders have less choice in relation to the individual elements of insurance cover sold in association with the provision and use of store cards than would be expected in a competitive market;
  • some customers who revolve their store card balance will continue to pay for elements of the insurance package (purchase and/or price) that they no longer require or which no longer provide them with cover; and
  • a lack of transparency in the provision of store card credit and insurance leads to cardholders taking credit or insurance on terms which are not clear to them.

The CC expects to implement these remedies by way of statutory orders to take effect in about 12 months from now.

The concerns over PPI highlighted in the CC report, including the lack of transparency and consumers paying for protection which was not relevant, overlap with those identified in the FSA's thematic work on PPI published in November 2005. To view our previous Law-Now article, FSA update on payment protection insurance, published on 4 November 2005, please click here.

The FSA thematic work focused on the level of compliance with FSA rules by firms selling payment protection insurance (PPI) with credit arrangements (including revolving credit, unsecured loans and prime and sub­prime mortgages and other secured loans). The FSA found that, while most firms were unlikely to pressurise customers into buying PPI:

  • there was a risk of inappropriate sales - some firms failing to take reasonable steps to ensure customers did not buy policies on which they could not claim or which provide only limited cover
  • there were inadequate controls in place for non-advised sales: some firms selling on a non-advised basis did not have adequate systems to stop their staff giving advice
  • advice on PPI was likely to be of poor quality - there was a failure to assess suitability adequately. Documentation setting out reasons for a recommendation was too generalised and did not take into account a customer's specific requirements or circumstances
  • the quality and timeliness of product and price disclosure by some firms selling single premium policies was poor
  • the level and structure of inducements and targets for sales staff could encourage mis-selling in some firms.

The purpose of this report was to feed back the FSA's detailed findings, including examples of compliant and non-compliant practices, so that firms understood the compliance problems the FSA found and the urgent action they needed to take to address these problems. Trade associations are due to respond to the FSA’s findings by the 17th March. Furthermore, the FSA plan to undertake another round of thematic work in the second quarter of 2006 to assess whether levels of compliance have improved.

The findings and outcomes from both the CC inquiry on store cards and the FSA work will play a key role in influencing the direction of the Office of Fair Trading (OFT) work on the Citizens Advice (CitA) super­-complaint about payment protection insurance. To view our previous Law-Now report, OFT aannounces market study into payment protection insurance, published on 16 December 2005, please click here.

The super-complaint reveals four main areas of concern for the OFT to consider:

  • consumers pay an excessively high price for PPI
  • the protection consumers buy is partial, with many policies unreasonably excluding common causes of credit default
  • consumers are frequently mis-sold PPI, with evidence of high pressure and unfair sales tactics
  • the administration of PPI claims can be slow and unfair, and can leave consumers facing additional charges or serious debt enforcement action.

The OFT intends to carry out a market study into PPI, the precise scope of which will be announced soon, now that the CC has published its final report.

One of the motivations for the CC report was to determine whether a broader Commission investigation is required into PPI beyond the store card sector. In light of the findings it seems very likely that the OFT will make a further reference to the Commission to investigate the sector as a whole as part of its market study into PPI.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 13/03/2006.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions