FOR IMMEDIATE RELEASE: December 9, 2002

NEW SCHUMER STUDY: BUFFALO STORE CREDIT CARDS CHARGE HIGHER RATES THAN BANK-ISSUED CARDS

As holiday shopping season hits full swing, new Schumer survey shows that credit cards from retail stores in Buffalo charge interest rates as high as 24 percent per year

With the promise of a one-time discount erased by high interest rates, Schumer urges Federal Trade Commission to take steps to protect consumers

With the holiday shopping season in full swing, US Senator Charles Schumer released a study today showing that interest rates charged by store credit cards in Buffalo are significantly higher than those charged by bank-issued credit cards. Standing at the Walden Galleria Mall in Cheektowaga, Schumer also detailed several measures that the Federal Trade Commission (FTC) should take to protect consumers.

"A store credit card is like a wolf in sheep's clothing," Schumer said. "You might think you're getting a real bargain at the register but just wait until the bill comes. Consumers could be in for an unwelcome New Year's surprise if they fall prey to these high credit card rates. As the holiday shopping season peaks, consumers need to beware of the pitfalls of these high-rate cards."

According to the survey, several retail stores in Buffalo offer consumers a discount at the register in order to lure consumers into accepting store credit cards. Typically, these retailers will knock off 10 to 15 percent on the first purchase. Those savings can quickly turn into a net loss if the customer does not pay off the credit card balance in full each month, or if payments are made late, which results in an additional fee.

Schumer's survey of 18 Buffalo area retailers includes data on store credit card interest rates and grace periods, including 4 electronics stores, 4 homeware stores, and 10 clothing stores. Almost all of the stores charge rates over 20 percent, well above the bank-issued credit card average rate of 13.7 percent.

The highest rate in the survey was found at Radio Shack, which charges 23.85 percent on all purchases on its store-issued credit card. Best Buy was close behind with an interest rate of 23.15 percent. Four different stores -- Ann Taylor, Express, Victoria's Secret and Abercrombie & Fitch -- each offer credit cards at 22.8 percent. Only one of the 18 stores surveyed offered an interest rate below 20 percent -- CompUSA, which charges 19.15 percent. (See attached fact sheet for a store-by-store analysis of interest rates and grace periods.)

Schumer's analysis showed that, over time, consumers who make purchases on store-issued credit cards can easily pay hundreds of dollars more in interest payments. A shopper who spent $1000 using a retail credit card with an annual percentage rate (APR) of 21.7, and made a minimum monthly payment of $50 for 12 months, would pay $115 more in interest than a person who followed an identical payment schedule with a bank-issued credit card with an APR of 13.7 percent.

"You don't need to be a mathematician to know that higher interest rates mean bigger bills," Schumer said. "Consumers should be wary of what seems like a good deal when you sign up for a store credit card because ten percent off your first purchase can quickly turn into a ten percent additional cost if you're not careful."

Schumer wrote a letter today to the Federal Trade Commission (FTC), urging the agency to examine the lending practices of retail credit cards. In the letter, Schumer asked the FTC to formally recommend specific steps that retail stores could take to protect their customers:

• Retail store promotional material should advertise the store's credit card interest rate and terms as prominently as they display the initial discount;
• Sales representatives should inform consumers verbally of the credit card's interest rate, and explain that the rate is higher than a typical bank-issued credit card;
• Retailers should avoid luring college students and young adults who do not have established credit ratings into accepting store credit cards.

Schumer also said that consumers themselves should beware of the high rates and urged shoppers to take steps to protect themselves:

• Shoppers should avoid using store-issued credit cards whenever possible;
• If a consumer is interested in signing up for a store credit card, the consumer should be sure to ask the sales representative about the details of the credit line's interest rate and fees;
• Bills should be paid in full and on-time if customers are to avoid paying exorbitant interest.

For a copy of Schumer's letter click here.

###