Banks that issue credit cards to millions of consumers have made significant changes over the past year in response to a regulation that may never come into effect. Synchrony and Bread Financial, known for issuing branded cards for companies like Verizon and JCPenney, raised interest rates and introduced new fees following an announcement by the Consumer Financial Protection Bureau (CFPB) regarding a rule that would limit late fees.
According to Sanjay Sakhrani, a KBW analyst covering the card industry, Synchrony and Bread were most affected by the proposed regulation. However, it now seems unlikely that the rule will be implemented. As a result, what was intended to save consumers money has actually led to higher costs for some.
Rates on retail cards have surged in the past year, with some reaching as high as 35.99%. Synchrony and Bread raised their annual percentage rates (APRs) by an average of 3 to 5 percentage points. Additionally, customers of these banks have been notified of new monthly fees for receiving paper statements.
Bread started increasing rates on some cards in late 2023 in anticipation of the CFPB rule. Perry Beberman, Bread’s CFO, mentioned that they have implemented several changes in response to the regulation, including APR increases and paper statement fees.
The CFPB aimed to cap late fees at $8 per incident to save consumers $10 billion annually. However, banks argued that late fees are necessary to deter defaults and that capping them would shift costs to those who pay on time. The U.S. Chamber of Commerce sued the CFPB to halt the rule, and a federal judge granted the industry’s request to delay its implementation.
The higher borrowing costs and fees resulting from the regulation are already impacting card users. Customers can avoid these additional costs by paying off balances in full and opting out of paper statements.
Consumers with lower credit scores, who are more likely to have store cards from Synchrony and Bread, will be more affected by the increased rates. Larger banks like Citigroup and Barclays have also raised rates on certain cards. Capital One chose to hold back on investments rather than changing customer pricing in response to the CFPB rule.
With the uncertainty surrounding the fate of the CFPB rule, banks are proceeding as though it will come into effect. However, the expectation is that the next CFPB head may not prioritize this regulation. Synchrony managers have not committed to reversing the rate increases and fees if the rule is abandoned.
Overall, the credit card industry is navigating through changes in response to regulatory uncertainty, and consumers are feeling the impact through higher costs and fees.
