Macy’s, Gap, TJX and other retailers increase store card APR | Wilnesh News

In the months before the Federal Reserve began cutting interest rates, dozens of the largest U.S. retailers and their banking partners raised interest rates on their store-brand cards to record highs as the companies looked to boost profits during a sales slump.

At least 50 companies – including large batch, gap, Petko, burlington, macy’s department store and TJX Corporation — Credit card annual interest rates increased between September 2023 and September 2024, based on review of information 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.

“Before we see the Fed’s rate hike cycle in 2022 and 2023, 30% is a threshold that few credit cards would dare to cross,” Ted Rossman, senior industry analyst at Bankrate, told CNBC. “But over the past few years, rates have gone from High to high, because the Fed raised interest rates by five and a quarter percentage points, and all of a sudden, 29.99% is no longer on the high end, and now we’re seeing that that’s common for these stores.

However, it is not just monetary policy that is 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, fell.

Now, average interest rates on store cards are at an all-time high ahead of the holiday shopping season, when most consumers apply for store cards. With credit card debt reaching new highs and delinquency rates at their highest level since 2011, Rothman warned consumers to think twice before signing up.

“If you get an opportunity like this this holiday season, really take a deep breath. If you’re trying to balance it, 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. “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.”

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 after the Fed’s planned rate cut, many card issuers preemptively raised 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. Monetary policy will be loosened at the 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. percentage points. 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 they were raising APRs on store cards, companies that responded to CNBC’s request for comment vaguely pointed to industry standards and the current economic environment.

“We work closely with our banking partner, Comenity Bank, to ensure that 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 grow 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 due to a combination 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 reveal 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 performance this year.

In May, the company raised its full-year credit card revenue forecast “due to better-than-expected profit share due to higher portfolio balances,” Chief Financial Officer Adrian Mitchell said on a conference call with analysts. In August, Mitchell said consumers were continuing Credit card balances stretched, which increased revenue “a little better than we expected.”

According to statistics, the number of new accounts opened with private-label cards has declined in seven of the past eight years. Ikefax. Many shoppers, especially younger shoppers, are beginning to choose 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 an October Equifax 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 Robin, 59, of Southern California. relationship professionals said of Macy’s decision to raise 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?

—Additional reporting by CNBC’s Stephanie Landsman.