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.
See also Eliminating Waste, Fraud, and Abuse in Medicaid My Administration has been relentlessly committed to rooting out waste, fraud, and abuse in Government programs to preserve and protect them for those who rely most on them. The Medicaid program was designed to be a program to compassionately provide taxpayer dollars to healthcare providers who offer care to the most vulnerable Americans. To keep payments reasonable, billable costs for such care were historically capped at the same level that healthcare providers could receive from Medicare. The State and Federal Governments jointly shared this cost burden to ensure those of lesser means did not go untreated. Under the Biden Administration, States and healthcare providers were permitted to game the system. For example, States "taxed" healthcare providers, but sent the same money back to them in the form of a "Medicaid payment," which automatically unlocked for healthcare providers an additional "burden-sharing" payment from the Federal Government. Through this gimmick, the State could avoid contributing money toward Medicaid services, meaning the State no longer had a reason to be prudent in the amount of reimbursement provided. Instead of paying Medicare rates, many States that utilize these arrangements now pay the same healthcare providers almost three times the Medicare amount, a practice encouraged by the Biden Administration. These State Directed Payments have rapidly accelerated, quadrupling in magnitude over the last 4 years and reaching $110 billion in 2024 alone. This trajectory threatens the Federal Treasury and Medicaid's long-term stability, and the imbalance between Medicaid and Medicare patients threatens to jeopardize access to care for our seniors. I pledged to protect and improve these important Government healthcare programs for those that rely on them. Seniors on Medicare and Medicaid recipients both deserve access to quality care in a system free from the fraud, waste, and abuse, that enriches the unscrupulous and jeopardizes the programs themselves. We will take action to continue to love and cherish the Medicare and Medicaid programs to ensure they are preserved for those who need them most. The Secretary of Health and Human Services shall therefore take appropriate action to eliminate waste, fraud, and abuse in Medicaid, including by ensuring Medicaid payments rates are not higher than Medicare, to the extent permitted by applicable law. This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person. DONALD J. TRUMP
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.
