A customer uses a credit card to pay for items at a store in New York City on January 28, 2022.
Robert Nickelsberg | Getty Images
Banks that issue credit cards used by millions of consumers have raised interest rates and introduced new fees over the past year in response to a looming regulation that most experts now think will never take effect.
Synchrony And Bread Financial, who specialize in issuing branded cards for companies, among others Verizon and JCPenney have said the steps were necessary after the Consumer Financial Protection Bureau announced a rule that cuts what the sector can charge in late payment penalties.
“They are the two banks that are most vocal about it, because they would be most affected by it,” he said Sanjay Sakhrania KBW analyst covering the card industry. “However, the consensus now is that the rule will not happen.”
As a result, proposed regulations, intended to save consumers money, have resulted in higher costs for some.
On November 22, CNBC reported that rates on a wide range of retail cards have increased over the past year, up to 35.99%. Synchrony and Bread increased the annual percentage rates (APRs) on their portfolios by an average of 3 to 5 percentage points, according to Sakhrani.
In addition, customers of the two banks have been notified of new monthly fees between $1.99 and $2.99 for receiving paper statements.
Synchrony Bank customers have received notices about new monthly fees for receiving paper statements, as part of the industry’s response to a CFPB rule limiting late fees.
Source: Synchron
Bread, which issues cards to retailers and others Big Lot And Victoria’s secretbegan raising rates on some of its cards in late 2023 “in anticipation” of the CFPB rule, Bread CFO Perry Beberman told analysts in October.
“We have made a number of market changes, including APR increases and paper statement fees,” Beberman said at the time.
Some pain, no gain
The CFPB says the credit card industry takes advantage of borrowers with low credit scores impose heavy penalties on them.
In March, the agency introduced a rule to cap late fees at $8 per incident, compared to an average of about $32. The rule would save consumers $10 billion annually, the regulator said.
But banks and their trade groups have argued that late fees are a necessary deterrent to prevent defaults and that a cap of $8 per incident would shift costs for those who pay their bills on time.
The U.S. Chamber of Commerce, which calls itself the largest trade group in the world, indicted the CFPB halted the rule in March, arguing that the agency exceeded his authority. In May, days before the rule was set to take effect, a federal judge ruled promised the industry’s request to halt its implementation.
Although the rule is currently being upheld in court, card users are already experiencing the higher borrowing costs and fees attributed to the regulation.
The higher annual interest rates apply to new loans and not old debt, meaning the impact for consumers will increase in the coming months as they rack up new debt to finance holiday spending. According to the Federal Reserve Bank of New York, Americans have a record $1.17 trillion on their cards, up 8.1% from a year ago.
“Due to regulatory changes, we have adjusted rates and fees to ensure we can continue to provide safe and convenient credit to our customers,” said a spokeswoman for Synchrony, based in Stamford, Connecticut.
Customers can avoid interest and fees by paying off balances in full and opting out of paper statements, the spokeswoman said.
Citigroup, Barclays
The increase in borrowing costs will have a greater impact on consumers with lower credit scores, who are more likely to have a store card issued by Synchrony and Bread.
Customers with worse credit may be considered too risky to qualify for popular rewards cards from issuers and others JPMorgan Chase And American Expressand are therefore more likely to use co-branded cards as an alternative.
That’s why Synchrony and Bread were eager to soften the blow to their businesses by raising rates and introducing fees, analysts said. The concern was that more of their customers would simply default on their loans if late payment penalties dropped to $8, and the profitability of their businesses would decline.
But other, larger banks have also increased interest rates.
Cards of Banana Republic and Athleta published by Barclays each saw an APR jump of 5 percentage points in the past year. The Home Depot card of Citi Group saw an increase of 3 percentage points, while the bank increased the APR on its Meijer card by 4 percentage points.
Representatives for Citigroup and Barclays declined to comment.
Capital Onewhich had warned earlier this year that it would take steps to offset the blow from the CFPB rule, said that instead of changing its customer prices it opted to forego certain unspecified investments. The bank is in the process of acquiring a competing card issuer Discover financial.
Even before the CFPB rule was set to take effect in May, the fate of the CFPB rule was considered murky, as lawsuits challenging the CFPB rule were filed in a venue widely seen as favorable to companies seeking federal regulation bypass.
But after the election victory of Donald Trump, who has broadly pushed for deregulation across all sectors, the next CFPB head is unlikely to keep that effort alive, policy experts said.
When asked whether they would roll back the higher annual interest rates and fees if the CFPB rule were to disappear, Synchrony executives were noncommittal. The bank must continue as if it is happening, CFO Brian Wenzel told analysts in October.
“People use the term ‘rollback,’” Wenzel said. “As a company, we haven’t really thought about that yet.”
— CNBC’s Gabrielle Fonrouge contributed to this report.