Credit card issuers are preserving elevated interest rates and new fees that were initially implemented to offset a Consumer Financial Protection Bureau (CFPB) rule restricting late fees, even after bank industry groups successfully defeated that rule in federal court last month. Major retail card issuers Synchrony and Bread Financial have explicitly stated they have no plans to roll back the changes despite the rule's demise.
What to Know:
- Retail credit cards hit a record average interest rate of 30.5% last year and have remained near that level despite the CFPB rule being overturned
- Banks had blamed the now-vacated CFPB rule limiting late fees for necessitating their dramatic rate increases
- Executives admitted they saw minimal customer pushback to higher rates, with some financially vulnerable consumers having limited alternatives
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Financial Giants Keep Rates Elevated Despite Legal Victory
Last year, banks rapidly implemented interest rate hikes to historic levels and introduced new monthly fees on credit cards when a Consumer Financial Protection Bureau rule threatened a significant revenue stream. Now those same financial institutions show remarkable reluctance to reverse those measures, despite their trade associations successfully overturning the CFPB rule in federal court.
Synchrony and Bread Financial, two dominant players in the branded credit card business for major retailers like Amazon, Lowe's and Wayfair, are maintaining their higher rates, according to statements from executives during recent earnings calls.
"We feel pretty comfortable that the rule has been vacated," Synchrony CEO Brian Doubles said on April 22. "With that said, we don't currently have plans to roll anything back in terms of the changes that we made."
Ralph Andretta, CEO at Bread Financial, expressed similar intentions: "At this point, we're not intending to roll back those changes, and we've talked to the partners about that."
The executives celebrated the elimination of a proposed CFPB regulation designed to limit credit card late fees, an initiative the industry condemned as misguided regulatory overreach. Under then-Director Rohit Chopra, the CFPB estimated its rule would save American families $10 billion annually. Instead, the proposal inadvertently resulted in borrowers facing higher interest rates and additional fees for paper statements as credit card companies moved to compensate for anticipated revenue losses.
According to a Bankrate survey, retail cards reached an unprecedented average interest rate of 30.5% last year. These rates have remained stubbornly close to those record levels in 2024.
"The companies have made a windfall," said David Silberman, an experienced banking attorney who teaches at Yale Law School. "They didn't think they needed this revenue before except for [the CFPB rule], and they're now keeping it, which is coming directly out of the consumer's pocket."
Both Synchrony and Bread substantially exceeded profit expectations for the first quarter. Analysts following these companies have increased estimates for their annual earnings, despite lingering concerns about a potential U.S. economic slowdown.
Vulnerable Consumers Bear the Burden of High-Rate Cards
While store cards represent a relatively small segment of the overall credit card market, Americans experiencing financial hardship are more likely to depend on them. These high-interest products also serve as crucial profit generators for popular American retailers.
The CFPB reported more than 160 million open retail card accounts last year in a December report highlighting risks associated with these high-interest financial products.
Over half of the 100 largest U.S. retailers offer store cards, with brands including Nordstrom and Macy's relying on them to generate approximately 8% of gross profits in recent years, according to CFPB data.
Ted Rossman, senior analyst at Bankrate, suggested banks may be exploiting the fact that some retail card users lack credit profiles necessary to qualify for general-purpose cards from issuers like JPMorgan Chase or American Express.
Nearly half of all retail card applications come from individuals with subprime or no credit scores, and the financial institutions behind these cards approve applications at higher rates than for general-purpose cards, the CFPB reported.
"Companies like Bread or Synchrony, they rely a lot more on people who carry balances or who pay late fees," Rossman explained.
Interest rates on retail cards have decreased less than 1% on average since reaching their 2024 peak and typically exceed rates for general-purpose cards by approximately 10 percentage points, according to Rossman's analysis. This stark differential suggests other major retail card sector participants, including Citigroup and Barclays, likely haven't reversed their rate increases following the CFPB rule's defeat. For example, the most recently published APR on the Macy's card, issued by Citigroup, stands at 33.49%.
Synchrony's CEO provided some insight into why banks show little enthusiasm for reversing these increases: consumers either didn't notice the higher rates or felt they had no alternatives.
Retail cards are typically marketed online or at brick-and-mortar checkout counters, often attracting users with promotional discounts or rewards points.
"We didn't see a big reduction in accounts or spend related to the actions" they implemented last year, Doubles told analysts. "We did a lot of test and control around that."
A Synchrony spokeswoman indicated the Stamford, Connecticut-based bank will discuss potential future program changes with its brand partners. This might include enhancing promotional offers at specific retailers, Doubles mentioned during the April earnings call.
"Our goal remains to provide access to financial solutions that provide flexibility, utility, and meaningful value to the diverse range of customers, partners, providers, and small and midsized businesses we serve," Synchrony stated.
Alaina Fingal, a New Orleans-based financial coach, frequently advises individuals trapped in debt spirals from retail credit card usage. Some clients must take additional jobs, such as driving for Uber Eats, to reduce their balances, she noted.
"They do not understand the terms, and there are a lot of promotional offers that may have deferred interest clauses that are in there," Fingal said. "It's extremely predatory."
Closing Thoughts
The financial industry's successful legal challenge against the CFPB's late fee rule has resulted in a persistent burden for credit card users, particularly those with retail cards. Despite achieving their desired regulatory outcome, major card issuers have maintained the elevated rates and fees they initially blamed on the now-vacated rule, creating what experts describe as a "windfall" at consumers' expense.