Owing to lucrative rewards and benefits, store cards have gained popularity in the last few years. Store cards like Amazon Prime Rewards Visa Signature Card and the Target REDcard™ Credit Card give a flat 5% discount on eligible purchases at Amazon and Target. Plus, they offer free shipping and a long return window. Needless to say, people are happy to use these cards.
However, there is one point that people are forgetting. Store credit cards have loads of drawbacks. They leave you unprotected and vulnerable to unauthorized charges. They offer minimum protections when it comes to disputing charges. Other credit cards running on a network like Mastercard or Visa give you more protection than store cards.
How store cards leave you unprotected
The Consumer Financial Protection Bureau (CFPB) receives hundreds of complaints from consumers regarding unauthorized charges. Most of them have been charged for purchases that they didn’t make or aren’t satisfied with.
A New York-based teacher recently complained to the CFPB that he has been charged $7300 for a prepaid cruise, which he is completely unaware of. Again, a Florida based chef paid $2600 for installing a front door in his home. But he was not satisfied with the product. So, he wanted to get back a portion of his money. He complained that store cards didn’t provide him comprehensive coverage and faced a lot of issues in reversing a portion of the transaction.
These are only a few instances. If you explore popular credit card forums, you’ll hear more stories from consumers. As of now, let’s find out how store cards leave your money protected.
1. Store cards offer minimum protections for billing errors
As per the 1974 Fair Card Billing Act, store card issuers have to follow proper dispute procedures when consumers aren’t happy with a product or service. They are also required to look into billing errors. But the requirements are not stringent and comprehensive.
Normal Visa and Mastercards give additional protections to consumers, which makes it easier to dispute charges. They provide extensive coverage to consumers to contest fraudulent charges.
2. Store cards have geographical limitations
Most store cards, like the Home Depot Consumer Credit Card and My Best Buy Credit Card, come with geographical limitations. For instance, the terms and conditions of a closed-loop card issued by Comenity Bank clearly state that consumers can get back their money under the following circumstances:
- Consumers aren’t happy with the quality of goods or services
- Consumers have already complained about the product to the retailer
- Consumers have purchased the product in their home state or within 100 miles of their current mailing address
This has become a major problem for the consumers especially after the emergence of e-commerce websites where they can buy products 3000 miles away from their home.
Normal credit cards like American Express, Visa card, and Mastercard allow consumers to contest charges irrespective of the geographical location of the place from where a product was purchased.
3. Store cards have high APRs
Most store cards charge higher-than-average APRs, which implies that consumers have to pay more when they carry a balance. They have to pay more in interest. Some store cards even have a deferred interest feature where interest accrues in the background. If consumers can’t pay off the entire balance before the deferred interest offer ends, they will be charged interest on the purchase price, retroactive to the date they bought it.
How credit cards give you more protection than store cards
|Store cards||Credit cards|
|You have fewer options to get your money back.||You have various options to reverse a transaction.|
|There are geographical limitations in the case of store cards.||There are no geographical locations in the case of credit cards.|
|Closed-loop store cards offer minimum protections for disputing charges.||Mastercard and Visa cards offer additional protections and coverage for contesting charges.|
|Store cards offer a deferred interest feature where interest accrues in the background.||They give a 0% introductory APR offer where consumers can save money on interest for 12-18 months.|
4 Steps to safeguard yourself when you’re using store cards
There is no doubt that store cards offer big discounts on purchases. But they have a few drawbacks also. If you still want to use a store card, then here are a few steps you can take to safeguard yourself.
- Read the terms and conditions of a store card before accepting it. Find out how to dispute unauthorized charges and when rewards will expire.
- Contact the retailer directly when a product is not delivered or you’re not happy with the item. Ask him to solve the problem first and then contact the store card issuer.
- Review your monthly bills and statements every month to find out if there is an unauthorized charge. This can help you to dispute charges within the specified time limit of the store cards.
- Save all the receipts. You’ll need them at the time of disputing the charges.
File a complaint with the CFPB if you’re not satisfied with how a store card issuer has addressed your problem. You can also report the matter to your State’s Attorney General.