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Clearer store card conversion for consumers

GE Capital Bank agrees to clarify conversion of store cards to credit cards

09/04    15 January 2004

GE Capital Bank Ltd (GE) has changed the way it will offer to replace its store cards with a Mastercard credit card after discussion with the OFT.

GE has sent out letters to many Harrods and Debenhams cardholders saying that their store card would automatically be replaced by the Mastercard unless cardholders objected. The company later sent out letters with the new card explaining that the cardholder could continue to use the store card until the Mastercard was activated. However, this information was not prominently displayed and could easily be overlooked by the consumer. Although GE require all cards to be activated by the consumer before use, the OFT considered that the way in which the offer was presented did not alert consumers to their options with sufficient clarity.

The Consumer Credit Act 1974 prohibits the sending of a credit token to a consumer unless it has been requested in writing. GE considers that it was not contravening the law because it was not supplying a new credit token but sending a replacement card as a result of a variation to the existing store card agreement. The OFT recognises that the GE store card was similar to the credit card in some respects, including providing for cash advances. The legal position was therefore unclear.

GE has agreed to make changes to its approach. In its new mailing to Debenhams store cardholders it has made it clear that cardholders do not have to replace their store card with the credit card in which case they need take no further action, other than destroy the credit card. GE will also ensure that all the literature used in future conversions will make cardholders clearly aware of the options they have.

In addition, the OFT has challenged a standard term in the GE store card agreement that purports to give GE an unrestricted unilateral right to change the terms of the agreement. The OFT considers that this term was legally unfair (see note 1). GE has, without accepting the OFT's view, agreed to amend the challenged term to limit its applicability.

The OFT recognises that there may be advantages in replacing a store card with a credit card if the consumer chooses, especially where lower APRs are on offer. The OFT also notes that GE, in line with principles of responsible lending, has taken care to make a proper credit assessment of individual cardholders being invited to change to the credit card and that initially credit limits have remained the same. GE has also responded positively in discussion with OFT about ways of making the choices available to cardholders clearer. In the circumstances the OFT is taking no further enforcement action at this time.

John Vickers, OFT Chairman, said:

'GE Capital Bank has agreed to take practical steps so that consumers will have clearer information about their options.'

NOTES

1. The Unfair Terms in Consumer Contracts Regulations (UTCCRs) came into force in 1999 (superseding the UTCCRs 1994) and apply to standard contract terms used with consumers in contracts made after 1 July 1995. The UTCCRs protect consumers against unfair standard terms in contracts they make with traders.

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