Store Credit Card Rates Top 30 Percent Ahead of CFPB Late-Fee Rule

Visa credit cards in San Anselmo, Calif., on Feb. 7, 2024. Photo Illustration by Justin Sullivan/Getty Images

Users of store-branded credit cards might have noticed higher interest rates and the introduction of new fees over the past year ahead of a new rule lowering and capping late fees.

Store credit cards are a version of retail cards companies use to enhance brand loyalty by offering shoppers discounts on merchandise. While customers receive various perks and savings, they also face sky-high interest charges. Rates attached to these store cards have registered an upward trend this year.

According to a September Bankrate study, the average retail credit card interest rate was at a record high of 30.45 percent. By comparison, the average rate on a typical credit card is below 21 percent.

Other financial resources have observed higher interest rates. WalletHub, for example, found the latest average for store cards is slightly above 33 percent.

Still, says Ted Rossman, a senior industry analyst at Bankrate, customers may need to be cautious before retailers offer these cards.

“The retailer may dangle 10 percent off today’s purchase if you sign up, but that’s not worth it if you’re going to pay a 30 percent interest rate for years to come,” Rossman said in the group’s report studying store card rates.

“Thirty percent used to represent an unofficial ceiling for retail credit card rates, but now most retail cards have crossed that threshold.”

The sizable rate uptick could be in response to a new federal regulatory measure limiting late fees.

In March, the Consumer Financial Protection Bureau (CFPB) finalized a rule that would cap credit card late-payment fees at $8, which is lower than the industry average of $32.

Bread Financial is one company that has responded to the imminent regulation. Bread, which has partnered with many well-known brands such as Michaels, the New York Yankees, and Victoria’s Secret, blamed the “flawed CFPB late-fee rule” for its business model changes.

“In the back end of 2023, we took some early actions where we took some partial steps to increase APRs [annual percentage rates] in anticipation of the rule,” Bread Chief Financial Officer Perry Beberman said during a third-quarter earnings call with analysts. “Since then, we’ve implemented a number of changes that are in the market, including APR increases and paper statement fees.”

With President-elect Donald Trump and many within his incoming administration championing a deregulatory approach to governing, there has been speculation that the Trump administration could reverse some of these rules.

Industrialist Elon Musk, who will head the Department of Government Efficiency (DOGE) alongside former presidential candidate Vivek Ramaswamy, wants to eliminate the financial watchdog.

“Delete CFPB. There are too many duplicative regulatory agencies,” Musk wrote in a Nov. 27 X post.

Synchrony Financial, which offers various branded cards from Amazon, American Eagle, Lowes, and Verizon, is still planning for the late-fee rule introduction in 2025.

“We are operating as a company [which sees that] the administration has taken a view that they want the late-fee rule in. And we’re planning as if it’s going to go in—it’s just the point of entry of when it goes in,” Brian Wenzel, chief financial officer at Synchrony, said in a third-quarter earnings call.

The CFPB’s measure has faced a couple of legal hurdles pertaining to the industry change.

Shoppers walk past a Victoria's Secret store in Chicago on Nov. 21, 2019. Scott Olson/Getty Images

Earlier this year, the U.S. Chamber of Commerce filed a lawsuit against the CFPB to suspend the rule, stating that the independent agency overstepped its authority. In May, a federal judge approved the trade association’s submission to stop the implementation.

Whether the rule will go into effect or not remains to be seen.

“As a result of ongoing litigation, the Credit Card Penalty Fees Final Rule published in the Federal Register on March 15, 2024, is stayed,” the CFPB said.

Rob Nichols, president and CEO of the American Bankers Association, says the initiative would reduce competition, raise the cost of credit, and decrease credit access for the most vulnerable.

“The bureau’s misguided decision to cap credit card late fees at a level far below banks’ actual costs will force card issuers to reduce credit lines, tighten standards for new accounts, and raise APRs for all consumers—even those who pay on time,” Nichols said in a statement.

A recent FGS Global poll revealed that 52 percent of credit card holders are worried that reducing late fees to $8 will force companies to boost rates and fees to all users. In addition, 71 percent of credit card holders agree that late fees are important to cover lending risks and the costs of late payments.

Trump has indicated he is willing to rein in credit card companies’ business practices.

In September, the president-elect proposed temporarily limiting credit card interest rates to help “working Americans catch up.”

“We’re going to cap it at around 10 percent. We can’t let them make 25 and 30 percent,” he told a Long Island audience.

This has ostensibly captured bipartisan support.

Shortly after the presidential election, Sen. Bernie Sanders (I-Vt.) expressed a willingness to work with Trump on capping credit card interest charges. Sen. Josh Hawley (R-Mo.), speaking at a recent Senate Banking Committee hearing headlined by Visa and Mastercard executives, said one of Trump’s best campaign pledges was capping interest fees.

According to the Federal Reserve Bank of New York’s third-quarter Household Debt and Credit Report, credit card balances rose by $24 billion to a record $1.17 trillion.

A recent Bankrate survey found that more than one-third (37 percent) of cardholders have maxed out or come close to maxing their credit cards since the Federal Reserve started raising interest rates in March 2022. Fifty-four percent blamed price inflation for exhausting their credit cards.

“With limited options to absorb those higher costs, many low-income Americans have had no choice but to take on debt to afford costlier essentials—at a time when credit card rates are near record highs,” said Sarah Foster, a Bankrate analyst.