New regime for instant in store credit

The Credit Card Act 2009 saw one of the problems with credit cards was that they did not take adequate care in deciding who could afford to take credit.  This meant that an idea was floated to check that borrowers had adequate income.  This is now under threat.

Store cards have the advantage that they can be very quick and easy to obtain.  They are offered within the shop itself rather than online or through the post as is common with credit cards.  It is not necessary to wait between the application for the credit card and getting the credit card itself.  A common way in which store cards are offered is when a customer is buying the goods, and if they are willing to get the store card at the point of sale this means that they will be eligible for an instant saving on the card.

This means that store card providers do not have the same ability to vet for income and other factors in the same way that many other credit card providers can.  Under the Credit Card Act’s provisions this put store cards at risk.  Instead store cards had to drastically change the way in which they were offered.

Income estimation models have been developed by ratings agencies and they use employment and investment income, savings and investments held and credit scores.  These are designed to highlight signs such as the debt being very hard to service if the income dropped by a small amount.  The data comes from a number of sources including the IRS and credit bureaus.

This will mean that store cards can no longer give an instant decision as it will take fifteen minutes to access all the data and match the income.  If there are discrepancies with the details that the applicant gives then this will mean that there will need to be further investigation.  In real terms this will mean that there will be no credit card provided as it will be impractical to do this in store.

Store cards tend have higher interest rates and less favorable conditions than other credit cards.  However they tend to offer better rewards programs and extended interest free periods although these rewards are limited to the store itself and other companies within the group.  This can favor frequent customers and the cards may even be worth taking out for the introductory discount alone.