Consumers want transparent interest rates

It comes after retailers have been criticised over the way they run their store cards.

The OFT concluded that features of the store card market "prevent, restrict or distort competition."

The interest rates charged by store cards has also been slated, being well above those for credit cards.

Remedies

The OFT said that the gap between the rates charged on store cards and credit cards "may be more than can be explained by additional costs or the value of other benefits to store card holders".

Retailers and store card suppliers have been getting away with overcharging and failing to provide customers with clear information for far too long Claire Whyley, National Consumer Council

The Competition Commission will now investigate the issue further, before deciding on any "necessary remedies".

The Commission has the power to order changes to the structure of the store card market by introducing price caps and removing barriers to new entrants.

Consumer groups welcomed the OFT decision to refer store cards to the Commission.

"Retailers and store card suppliers have been getting away with overcharging and failing to provide customers with clear information for far too long. It is high time they put their house in order," said Claire Whyley, National Consumer Council spokeswoman.

The OFT investigation found that just 23% of people applying for store cards were offered the opportunity to take the application form away with them.

In fact, a substantial proportion of store card applicants were told that they could not take the application form away with them.

Information on what interest rate was being charged was not available in a third of cases, and 40% of the shoppers thought the information provided was inadequate.

Expensive

In addition, the OFT said it had concerns about lack of competition in the market to supply store card services to retailers.

Office of Fair Trading findings 40% of shoppers thought the information provided with store cards was "inadequate" On average the interest charged on store cards is at least 10% above that charged on a credit card 30% of adults hold a store card compared to 51% who hold a credit card Total store card lending was �4.8bn in 2002, around 2.5% of total consumer credit lending Source: Office of Fair Trading

It found that some firms providing store card services tied retailers into 10 year contracts making it prohibitively expensive for retailers to change to new providers that may offer consumers a lower rate of interest.

In response, the UK's biggest store card provider GE Consumer Finance denied that retailers were effectively barred from switching supplier.

"Within the store card sector there is vigorous competition between credit providers... There are also many recent examples of retailers changing suppliers," a GE Consumer Finance spokesperson said.

Not working

The OFT began its investigation after being taken to task by a committee of MPs for failing to do enough to protect consumers.

More than 20 million store cards have been taken out, with more than �4bn spent on them each year.

Interest on store cards runs at about 30%.

The Treasury Select Committee has said there is evidence competition is not working properly, as most cards charge very similar interest rates.