Last year, banks swiftly raised interest rates and introduced monthly fees on credit cards following a Consumer Financial Protection Bureau (CFPB) rule that threatened their profits. Despite the CFPB rule being recently overturned in court, banks like Synchrony and Bread Financial are hesitant to revert to previous policies. Synchrony CEO Brian Doubles and Bread CEO Ralph Andretta confirmed in earnings calls that they have no plans to reduce the elevated rates, which have reached a record average of 30.5% for retail cards.
The banking industry celebrated the demise of the CFPB regulation aimed at capping credit card late fees, which was projected to save consumers $10 billion annually. Instead, banks raised rates to compensate for the expected revenue loss, adversely affecting borrowers, especially those relying on high-interest retail cards. A December CFPB report noted over 160 million retail card accounts, emphasizing their financial burden on low-income consumers who often qualify for these higher-interest cards.
Retail credit cards, while only a small segment of the overall credit market, are crucial profit drivers for many U.S. retailers. Almost half of retail card applicants have subprime credit, and these cards are often marketed to customers in stores, luring them with discounts. Analysts observed no significant decrease in consumer engagement despite the rising rates, suggesting that many users feel cornered by their financial circumstances.
As the industry sees rising profits despite economic concerns, financial coaches warn of the predatory nature of retail credit cards, where unclear terms and promotions can entrap consumers in debt spirals. Overall, banks continue to prioritize maintaining high interest rates rather than easing financial pressures on borrowers.
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