High interest rates and 0% promotions with retroactive interest charges are just a couple reasons why I hate store credit cards.
But there’s something even worse… bankruptcy.
No, I’m not talking about you going bankrupt, but if the store goes bankrupt.
What happens to your store card in BK?
Back in December of 2011, RoomStore filed for Chapter 11 bankruptcy. Then in June of 2012, the judge changed it to a Chapter 7 – that means liquidation and going out of business.So what happened to the customers who made advance payments for furniture orders?
For customers who made those purchases on credit cards from other banks, the process would usually be pretty simple: they would file a dispute and since they did not receive the furniture, the bank would reverse the charges.
In the case of the Roomstore credit card, it’s messier. The store was still taking furniture orders right up ‘til the last days before bankruptcy. Customers were using the store’s card to prepay for orders, only to be left empty handed with no merchandise… yet they were still expected to pay back the credit card!
To get their money back, customers were told to file claims with the bankruptcy court. How many of those succeeded is unknown, but as recently as March 2013, the Daily Press (a local newspaper in the company’s home state) reported that RoomStore was still drawing complaints.
This situation reminds me a lot of when Boston Apparel Group, who owned Chadwicks and Metrostyle, went bankrupt a couple years ago and their credit card holders were left stranded.
This is one more reason to not use store cards
By making your purchase on a bank credit card that’s unrelated to the store, there are checks and balances in place since you’re dealing with a different company:
- If the store goes bankrupt, you may at least have some recourse through a bank credit card.
- If you have a dispute about the quality of the goods and services, an unrelated credit card company won’t have a bias (but if the store is also the card company, that might not always be the case).
The simplest advice would be to just avoid using store cards which are issued by financially troubled retailers, but of course that would be impossible to do.
Often times these bankruptcies happen out of the blue, without any advance notice. And if it’s a privately-owned company, it’s anyone’s guess as to what their financial health may be. Those who used a RoomStore credit card account had no way of knowing what lay ahead.
Is JCP next?
While I wouldn’t say there’s an imminent danger, one major retailer who has been going through tough times lately is JCPenney. Their CEO, Ron Johnson, recently stepped down and the company is hemorrhaging cash.
JCP is currently trying to raise money (and I have no doubt they will succeed) but on a longer term outlook of one or two years in the future, I would say there is an above-average risk of bankruptcy and therefore I would recommend not using the JCP credit card for special orders of pricey items like furniture.
This article was written or last updated May 2013