On January 28, 2022, a customer used a credit card to pay for items at a retail store in New York City.
Robert Nickelsberg | Getty Images
Over the past year, banks that issue credit cards used by millions of consumers have raised interest rates and introduced new fees in response to an upcoming regulation that most experts now believe will never take effect.
synchronicity and bread finance, Specializes in issuing brand cards for the following companies: Verizon and JCPenney said the measures were necessary following action by the Consumer Financial Protection Bureau declare a rule felling What late fees can the industry charge.
“They are the two banks that have been most vocal about this because they will be the most affected,” said Sanjay Sahraniis a KBW analyst responsible for research on the bank card industry. “However, the consensus now is that this rule will not happen.”
The result is that proposed regulations designed to save consumers money have instead led to higher costs for some.
November 1, 22, CNBC report Last year, interest rates on a large number of retail cards increased significantly, reaching as high as 35.99%. Synchrony and Bread increased the annual percentage rate (APR) of their portfolios by an average of 3 to 5 percentage points, Sakhrani said.
In addition, customers at both banks were notified that the new monthly fee for receiving paper statements will be between $1.99 and $2.99.
Synchrony Bank customers have been notified of new monthly fees for receiving paper statements as part of the industry’s response to the CFPB’s late fee cap rule.
Source: sync
Bread, which issues cards for retailers including large batch and victoria’s secretBread CFO “anticipates” CFPB rules to start raising interest rates on some cards by end of 2023 Perry Beiberman told analysts in October.
“We have implemented a number of market changes, including increases in annual interest rates and paper statement fees,” Beberman said at the time.
Some pain, no gain
Credit card industry profits from borrowers with lower credit scores, CFPB says impose heavy penalties on them.
In March, the agency issued a rule capping late fees at $8 per incident, down from an average of about $32. Regulators say the rule will save consumers $10 billion a year.
But banks and their trade groups argue late fees, which are capped at $8 per incident, are necessary to prevent defaults. will change The cost 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 halted the rule in March, citing the agency’s Exceed its authority. In May, days before the rule took effect, a federal judge indeed Industry calls for a halt to implementation.
Although the current rules are lift In court, credit card users are already facing higher borrowing costs and fees from the regulations.
Higher annual interest rates on new loans rather than older debt means the impact on consumers will be greater in the coming months as they accumulate new debt Funding holiday expenses. Americans owe a record $1.17 trillion The balances on their cards are 8.1% higher than a year ago, according to the Federal Reserve Bank of New York.
“Due to changing regulatory conditions, we have adjusted our rates and fees to ensure we can continue to provide customers with safe, convenient credit,” a spokesperson for Stamford, Conn.-based Synchrony said.
A spokesman said customers can avoid interest and fees by paying off their balances in full and choosing not to have paper bills.
Citigroup, Barclays
The spike in 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 poor credit may be considered too risky and ineligible for popular rewards cards from card issuers, including JPMorgan Chase and American Expressand therefore more likely to turn to co-branded cards as an alternative.
That’s why Synchrony and Bread are rushing to mitigate the impact on their operations by raising rates and charges, analysts say. There are concerns that if overdue fines were reduced to $8, more customers would default on their loans and their businesses’ profitability would plummet.
But other large banks have also raised rates.
Cards issued by Banana Republic and Athleta barclays bank Everyone’s annual interest rates increased by 5 percentage points last year. Home Depot card from Citigroup rose by 3 percentage points, while the bank increased the annual interest rate on its Meijer card by 4 percentage points.
Representatives for Citigroup and Barclays declined to comment.
capital oneThe company warned earlier this year that it would take steps to offset the impact of the CFPB rules, but it said it did not change customer pricing and instead chose to pause certain unspecified investments. The bank is acquiring rival card issuers Explore Finance.
Even before it took effect in May, the fate of the CFPB rule was considered unclear as lawsuits over the rule were filed in widely visible Also good for businesses seeking to fight back against federal regulation.
But after the election of Donald Trump, who pushed broadly for deregulation across industries, the next head of the CFPB is expected to be Unlikely To keep the effort alive, policy experts say.
Synchrony managers were noncommittal when asked whether they would reverse higher annual interest rates and fees if the CFPB rules were lifted. Chief Financial Officer Brian Wenzel told analysts in October that the bank must continue as it is happening.
“People use the word ‘rollback,'” Wenzel said. “As a company, we haven’t spent any time thinking about this.”
—CNBC’s Gabrielle Fonrouge contributed to this report.
