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 impending regulation that most experts now believe will never go into effect.
Synchrony and financial bread, who specialize in issuing branded cards for companies including Verizon and JCPenney, have said the measures were necessary after the Consumer Financial Protection Bureau announced a rule that cuts what the industry can charge in late fees.
“They are the two banks that have been most vocal about it, because they were going to be the most affected,” said Sanjay Sakhrani, an analyst at KBW who covers the card industry. “However, the consensus now is that the rule will not apply.”
The effect is that regulation intended to save consumers money has instead resulted in higher costs for some.
On November 22, CNBC reported that rates on a wide range of retail cards increased over the past year, reaching as high as 35.99%. Synchrony and Bread increased the annual percentage rates, or APRs, of their portfolios by an average of 3 to 5 percentage points, according to Sakhrani.
On top of that, customers of the two banks have been notified of new monthly fees of between $1.99 and $2.99 for receiving paper statements.
Synchrony Bank customers have received notices about new monthly fees for receiving paper statements, part of the industry's response to a CFPB rule that limits late payment fees.
Source: Sincronía
Bread, which issues cards to retailers such as Large lots and Victoria's secretbegan raising the rate on some of its cards in late 2023 “in anticipation” of the CFPB rule, Bread Chief Financial Officer Perry Beberman told analysts in October.
“We have implemented a number of changes that are in the market, including APR increases and paper financial statement fees,” Beberman said at the time.
Some pain, no gain
The CFPB says the credit card industry profits from borrowers with low credit scores by charging them onerous penalties.
In March, the agency introduced a rule to limit late payment fees to $8 per incident, down from an average of about $32. The rule would save consumers $10 billion a year, the regulator said.
But banks and their trade groups have argued that late fees are a necessary deterrent to default and that limiting them to $8 per incident would shift the costs to those who pay their bills on time.
The U.S. Chamber of Commerce, which calls itself the world's largest trade group, sued the CFPB in March to stop the rule, arguing that the agency overstepped its authority. In May, days before the rule went into effect, a federal judge granted the industry's request to halt its implementation.
While the rule is currently held up in court, card users are already dealing with increased borrowing costs and fees attributed to the regulation.
The higher APRs apply to new loans, not old debt, meaning the impact for consumers will increase in the coming months as they rack up new debt to fund holiday spending. Americans owe a record $1.17 trillion on their cards, up 8.1% from a year ago, according to the Federal Reserve Bank of New York.
“Due to changes in regulatory conditions, we adjusted rates and fees to ensure we can continue to provide safe and convenient credit to our customers,” said a spokeswoman for Stamford, Connecticut-based Synchrony.
Customers can avoid interest and fees by paying balances in full and opting out of paper statements, the spokeswoman said.
Citigroup, Barclays
Rising borrowing costs will have a greater impact on consumers with lower credit scores, who are more likely to have store cards issued by Synchrony and Bread.
Customers with worse credit may be considered too risky to qualify for popular rewards cards from issuers including JPMorgan Chase and American Expressand are therefore more likely to turn to co-branded cards as an alternative.
That's why Synchrony and Bread were eager to mitigate the impact on their operations by raising fees and introducing fees, according to analysts. The concern was that more of their clients would simply default on their loans if late payment penalties were reduced to $8, and the profitability of their businesses would plunge.
But other larger banks have also raised rates.
Banana Republic and Athleta cards issued by Barclays each saw an APR increase of 5 percentage points in the last year. The Home Depot card citi group had an increase of 3 percentage points, while the bank increased the APR of 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 impact of the CFPB rule, said that instead of changing its customer prices it chose to refrain from making certain unspecified investments. The bank is in the process of acquiring a rival card issuer Discover Finance.
Even before it took effect in May, the fate of the CFPB rule was considered murky, because litigation against it was filed in a venue widely considered favorable to corporations seeking to counter federal regulation.
But after the election victory of Donald Trump, who has broadly pushed deregulation across industries, the expectation is that the next CFPB chief is unlikely to keep the effort alive, according to policy experts.
When asked if they would reverse the higher APRs and fees if the CFPB rule went away, Synchrony managers were noncommittal. The bank has to proceed as if it's happening, Chief Financial Officer Brian Wenzel told analysts in October.
“People use the term 'revert,'” Wenzel said. “As a company, we haven't spent a lot of time thinking about that.”
—CNBC's Gabrielle Fonrouge contributed to this report.
