Tommy | Digital Vision Vectors | Getty Images
Dozens of the largest U.S. retailers and their banking partners raise rates store brand card Set a record high in the first few months of the Fed Start cutting interest ratesas these companies look to boost profits during a period of sluggish sales.
At least 50 companies – including large batch, gap, Petko, burlington, macy’s department store and TJX Corporation — Credit card annual interest rates increase between September 2023 and September 2024, according to data review Collected by Bankrate.com Surveyed 100 of the nation’s largest retailers.
Bankrupt home furnishings chain Big Lot raised its annual interest rate by 6 percentage points, from 29.99% to 35.99%, the largest increase among retailers reviewed by Bankrate. Gap had the second-largest increase, with its Banana Republic, Athleta, Old Navy and namesake brands increasing by 5 percentage points. Petco ranked third, with an increase of 4.5 percentage points.
large quantities, College SportsBurlington, Michael’s and Petco are tied for the highest annual interest rates among companies tracked by Bankrate, with annual interest rates reaching a staggering 35.99% as of September.
“Until we see the Fed’s rate hike cycle in 2022 and 2023, 30% is a threshold that few credit cards will dare to cross,” Bankrate senior industry analyst Ted Rossman told CNBC. “But 30% is a threshold that few credit cards will dare to cross.” Interest rates have gone from high to high over the past few years as the Fed raised rates by five and a quarter percentage points and all of a sudden, 29.99% It’s not high-end anymore. Now we’re seeing that it’s common for these stores to charge over 30%. “
However, it’s not just monetary policy that’s driving up annual interest rates. Just before the Federal Reserve began its rate-cutting cycle in September, many retailers and their banking partners raised interest rates on store cards to protect their profits as the federal funds rate, which determines its own interest rate, falls.
Right now, the average interest rate on store cards is all time high Just before the holiday shopping season, this is when most consumers sign up for store cards. as credit card debt reached new highs and Arrears hit Rothman warns consumers that levels haven’t been seen since 2011 Think before you act Before registering.
“If you get an opportunity like this this holiday season, really take a deep breath. If you’re trying to balance it out, I would say no,” Rothman said. “If you pay it off right away and get the reward, well, that’s right It works for you. But all too often we hear people sign up for these cards and they don’t even realize what they’re getting into.”
That’s what happened to Jasmine Matheney, a 35-year-old small business owner in Michigan, when she Nordstrom Just before Christmas, when she was 18 years old. She received a limit of $5,000, which she quickly used up, spending much of it on gorgeous gifts for her loved ones and new clothes for herself.
“I went crazy. I bought everything. I didn’t know, oh, you have to pay this back, honey, it’s going to charge you some fees. So ultimately, I ended up defaulting on the account,” Matheny recalled road. interview. “That raises a bunch of questions for me.”
Matheny’s Nordstrom debt ended up in collections, so it took her years to rebuild her credit.
“It shows you know how their greed affects them,” Matheny said of the record-high interest rates. “They trick you and say you can save 40 percent off with this card, and then when you end up with a balance What happens when? Well, you just paid off 40% and then some.”
Profit padding and hedging bets
Most credit cards are tied to a prime rate, which changes based on the Federal Reserve’s interest rate. Generally speaking, if the central bank’s federal funds rate falls, the interest a retailer’s banking partners can charge customers also falls. Rather than see profits drop in the wake of the Fed’s planned rate cuts, many card issuers are preemptively raising rates.
Typically, when shoppers pay interest or late fees on branded cards, the retailer and its banking partners share the revenue.
All of the retailers reviewed by CNBC raised rates ahead of the Fed’s first rate cut in four years on Sept. 18. These companies have raised rates even though the prime rate has not changed and the market is increasingly certain of that. The Federal Reserve will begin easing monetary policy at its September meeting.
Between September 2023 and September 2024, the average annual interest rate of retail credit cards will increase by 1.52 percentage points, while the average annual interest rate of traditional credit cards will increase by 0.08 percentage points. That suggests the rapid rise in rates is unique to memory cards, Bankrate data shows.
Additionally, the average annual interest rate for store cards increased by 2.21 percentage points between November 4, 2022, and September 2023. Excluding the 1.5 percentage point rate hike implemented by the Federal Reserve during this period, retailers increased rates by an additional 0.71 percentage point. That’s less than half the increase in store card rates between September 2023 and September 2024 without a change in the federal funds rate.
When asked why it was raising APRs on store cards, the company that responded to CNBC’s request for comment vaguely pointed to industry standards and the current economic climate.
“We work closely with our banking partner Comenity Bank to ensure APR adjustments are made responsibly and in line with overall industry standards. Our goal remains to enable our customers to buy what they need and pay for it over time. Push payments to ensure they have access to basic services, a Big Lot spokesperson told CNBC.
The representative referred CNBC to Comenity for further comment. The bank stated, “Earlier this year, interest rates began to rise across the financial services industry, driven by a variety of factors, including historical federal rate hikes, rising credit losses and regulatory pressures.”
A spokesperson for Nordstrom pointed to the benefits of its credit card program and said, “We are continually working to simplify our credit card pricing structure.”
“Our pricing structure follows a variable rate model tied to the prime rate,” the spokesperson said. “This adjustment ensures we remain consistent with the current economic environment and continue to offer rates that are competitive with other retail card programs. Despite the increase, our rates remain consistent with similarly situated co-branded cards ”
However, the timing and scope of merchant card interest rate increases point to a clearer reason for the change: profits.
“Store cards are big business,” said Bankrate’s Rothman. “They can also become profit centers.”
He pointed to a 2023 report from Citi analyst Paul Lejuez, which found that 49% of Macy’s 2022 operating profits came from its credit card program.
Higher interest rates also appear to be boosting Macy’s financial results this year.
In May, the company raised its full-year credit card revenue forecast “due to better-than-expected profit share on higher portfolio balances,” Chief Financial Officer Adrian Mitchell said on a conference call with analysts. In August, Mitchell said consumers were continuing Credit card balance Lasting longer, this increased revenue “a little better than we expected.”
Some retailers, including Macy’s, Nordstrom and TJX, have passed on the 0.5-percentage point rate cut enacted by the Federal Reserve in September to their cardholders. Still, their annual interest rates are at record highs, 2 to 2.25 percentage points higher than a year ago.
While this may be bad for consumers, it’s good news for Wall Street. Store cards aren’t as popular as they once were, which means retailers need to make more money from the customers they still have.
According to statistics, the number of new accounts opened with private-label cards has declined in seven of the past eight years. Exfax. Many shoppers, especially younger ones, are turning to services such as “buy now, pay later.”
An increase in credit card interest rates, which are usually easy to get, makes sense given that credit card delinquency rates are at their highest levels since 2011. But as of the end of July, only 14% of private-label cards were issued to subprime credit consumers. Additionally, more than half of new accounts belonged to people with credit scores above 700, according to Equifax’s October report.
Additionally, retailers do not selectively raise interest rates for customers with bad credit. Even those with good credit scores, like Macy’s customer Brian Robin, face higher interest rates.
“This is absolutely unexpected and completely unfounded considering I never miss a payment on their card and I always pay more than the minimum,” said Public Robin, 59, of Southern California. relationship professionals said of Macy’s decision to increase annual interest rates.
“My credit score is 744, so I’m not at risk of defaulting or anything… It makes me less interested in shopping at Macy’s. I mean, think about it. Why would you want to shop at Macy’s? Shopping? Which place charges you usurious interest rates?”
—Additional reporting by CNBC’s Stephanie Landsman.
