Shops will no longer be able to offer instant inducements to customers to take out expensive store cards, under a voluntary code agreed between banks, the British Retail Consortium and the Government.

Many shops currently offer discounts at the till to those who successfully apply for a store card. This will not be possible under the agreement.

Yet the hidden nasty is the sky-high rates levied to those who fail to clear their balance each month which can quickly wipe out the discount.

For example, New Look charges 28.9% annual interest on its store card. This compares to a typical rate on a standard Barclaycard credit card of under 20%.

A 28.9% rate costs £289 a year, assuming a constant £1,000 balance. A 20% rate costs £200 using the same example.

The moves form part of a voluntary package of measures, agreed with the major banks, which also help limit bank overdraft charges.

However, the store card curbs only come into force in spring next year.

The code states:

  • Stores can only give discounts seven days after the customer applies for the plastic.
  • There will be a ban on staff receiving commission for sales.
  • However, the Government has decided against introducing a cap on store card and credit card rates, as it believes lenders may reject more applicants if there was a cap, which could force them into the hands of unregulated lenders. creator Martin Lewis says: "I'm torn over this. The one good use of a store card has been taken away. 

"Used right, it can provide a discount  which can be taken and paid off in full. Better still, go shopping with a group of friends, one signs up, the rest use it (giving the payer the money) and everyone gets the discount. Then the next time you're shopping, someone else pays to keep the discount running.

"The problem is this works for the financially savvy but not for the many young people who are new to borrowing and don't understand it. 

"I'm also confused why the regulatory focus isn't on the 'borrowing' element such as interest rates, cooling off periods, regulating sales, so things are explained properly rather than just cutting the discount. 

"Sadly, the lack of financial education in schools means some sign-up for these cards thinking it's free money, and they won't need to repay. Cutting the discount won't help them."