Credit card fee caps hurt department stores the most

If consumers don't pay their credit card bills on time, they can be charged an average late fee of $32. The Consumer Financial Protection Bureau calls it a junk fee. The Biden administration is trying to crack down on these practices by limiting the late fees banks charge credit card users to $8 per transaction. The regulations will take effect on May 14.

This may be good for consumers, but banks don't like it. It's safe to say the same goes for retailers like Nordstrom, Macy's and Kohl's, which are already struggling. Credit cards have become an important part of department store profits. One analyst estimates that nearly half of Macy's operating profits come from the credit card program.

When you think of a credit card, you probably think of one of the big card issuers, such as Visa or Mastercard, or maybe a bank. But credit cards were invented by retailers.

“In the beginning, it was just a bookkeeping job,” said Bill Maurer, a professor of anthropology and law at the University of California, Irvine. “You know, essentially on the notebook behind the counter.”

These less formal lines of credit once became the standard. But eventually, stores started offering physical cards that looked like small metal plates.

“It looks a little like the size and shape of a military dog ​​tag, with the customer's message on it,” Maurer said.

The focus was on building customer loyalty; it was the early 1900s and new stores were opening all the time.

“Retailers and merchants are really looking for a way to keep customers coming back to their stores rather than going to competitors, to the point where some merchants are almost operating like bankers,” Maurer said.

Retailers eventually realized they were better at selling than lending, and banks took over the logistics. But today, store cards are still an important part of their business. They help retailers collect data on what people buy and promote targeted discounts.

“I do remember being very excited about having a Bloomingdale's credit card,” said Moody's retail analyst Christina Boni, adding that the cards connect customers to the brand.

Store cards encourage spending. They also generate another revenue stream because they carry higher interest rates than bank-issued cards. Store card rates recently hit an all-time high of nearly 29%.

Boney believes the Consumer Financial Protection Bureau's move to limit late fees will hurt department stores the most.

“If you think about those lost dollars going directly to profits, that's another thing that they have to deal with and have to pivot from,” she said.

Ted Rossman, a credit card analyst at, said there will always be some demand for store cards. For example, the Gap card is typically easier to get approved for than an American Express card, so it's a first line of credit for many people. Sometimes a store card is the only solution for a financial emergency.

“Point of sale, easy financing, like people who really need credit right now because they can't buy a new refrigerator or a new tire,” Rothman said.

But Rothman said these customers are increasingly turning away from credit cards and instead opting for “buy now, pay later” options such as Affirm and Klarna. To lure them back, more retailers may turn to co-branded cards, he said. These are store-issued cards that can be used anywhere, not just at one brand.

“With retailers like Costco, this card is very popular, not just for Costco but for gas, travel and other things,” he said.

Retailers also need to work harder to market their brands. So we might experience more of that familiar moment at checkout when a salesperson motions to a brochure next to the register.

“They tempt you, right? Like, 'Do you want 10% off your purchase today or 20% off your purchase today?'

Sounds good—until you factor in 30% annual growth.

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