At least 50 major retailers are raising interest rates on private label credit cards to record highs, even as inflation continues to plague shoppers across the country, a shocking new study reveals It became.
Big chains like Macy's, Gap, TJ Maxx and Petco raised annual interest rates on store-issued credit cards before the Federal Reserve began cutting interest rates in September. According to a report from CNBC it is Based on Bankrate.com data.
Retailers are pushing interest rates above 30%, an all-time record that breaks the implied annual rate cap of 29.99% for the first time in years.
This is despite economists predicting further cuts in government lending rates in coming months.
There is no federal cap on fees, but companies are required by law to clearly post changes and alert customers. Experts are advising shoppers to think twice before signing up for a new card in the midst of the holiday season.
“If you're offered one of these this holiday season, really take a breath. If you're going to hold on to the balance, I'd say no,” Bankrate analyst Ted Rothman said. . “We often hear from people who sign up for these cards and don’t even realize what they’re getting into.”
Big Lots, the discount retailer that filed for bankruptcy in September, increased its APR by six points, from 29.99% to 35.99%, the largest increase among the 100 retailers Bankrate analyzed.
The second biggest increase was at Gap, which raised rates on its Banana Republic, Athleta and Old Navy cards by 5 points to 34.99%. Petco rose 4.5 points to 35.99%, ranking third.
The move appears to be an attempt by major retailers to maximize profits as the crucial holiday season gets into full swing. Nearly half of Macy's 2022 operating profit came from its credit card program, according to a 2023 report from Citi analyst Paul LeJuet.
In May, Macy's raised its full-year forecast for credit card sales “due to higher-than-expected profit sharing from portfolio growth,” Finance Director Adrian Mitchell said on a conference call.
Mitchell said in August that the company's revenue is being supported by consumers keeping their credit card balances for longer than expected.
Luxury chain Macy's Bloomingdale's saw its annual interest rate rise 2.5 percentage points to 34.49%. TJX, which owns TJ Maxx, Marshalls and Home Goods, raised its annual interest rate by 2.75 points to 34.99%.
CNBC reports that Big Lots, Academy Sports, Burlington, Michaels, and Petco are tied for the top with a whopping 35.99% annual return as of September.
A Big Lots spokesperson told CNBC that the APR changes are being made “responsibly and in line with industry-wide standards.”
Big Lots' partner bank Comenity said the rate hike was “due to several factors, including historic federal interest rate hikes, increased credit losses, and regulatory pressures.”
Some companies, including Macy's, Nordstrom and TJX, lowered their interest rates to match the Fed's 0.5 percentage point cut, but their APRs are still 2 to 2.5 percentage points higher than a year ago.
A Nordstrom spokesperson told CNBC that the APR adjustment ensures that interest rates “are consistent with the current economic environment.”
Macy's, Burlington, TJX Companies, Gap, Petco and Big Lots did not immediately respond to the newspaper's requests for comment.
Signing up for in-store credit cards is becoming less popular as younger shoppers prefer buy now, pay later options such as Klarna and Afterpay. This forces retailers to make more money from a smaller group of customers, which incurs high interest rates and staggering late fees.
Most credit cards, including store cards, are tied to the central bank's federal funds rate, so retailers raised interest rates ahead of the Fed's long-awaited rate cut. Retailers and partner banks typically split the revenue when customers pay interest or late fees on their cards.
All of the major retailers surveyed by CNBC raised rates before the Fed's cut, at a time when investors had high hopes for a central bank rate cut.
Annual interest rates on retail credit cards increased by an average of 1.52 percentage points from September 2023 to September 2024, while interest rates on traditional credit cards increased by only 0.08 percentage points, according to Bankrate data.
The average annual interest rate on store credit cards also increased by 2.21 percentage points from November 2022 to September 2023, according to CNBC. During the same period, the Fed raised interest rates by 1.5 percentage points, while retailers raised rates by an additional 0.71 percentage points.
