Department Stores Face Financial Pressure From Proposed Junk Fee Ban

The changing credit card landscape could mean trouble for department stores.

Retailers like Macy’s and Nordstrom are dealing with a pair of card-related threats to their bottom lines, The Wall Street Journal reported Wednesday (Feb. 7). The first is a proposal by the Consumer Financial Protection Bureau to lower late fees, and the second is a rise in delinquencies.

Credit cards are important to department stores, as credit income made up nearly half of Macy’s and Nordstrom’s 2022 operating income, the report said, citing Bank of America Global Research equity analyst Lorraine Hutchinson.

For Kohl’s, credit income surpassed operating income, according to the report, which suggests the company would have seen an operating loss if not for its credit card revenue.

Late fees are also crucial for store-branded credit cards, making up about a quarter of such card issuers’ total interest and consumer fees, the report said, citing a 2022 CFPB report. Stores typically break down these revenue streams, but analysts put late fees at 14% and 30% of overall credit card portfolio revenue.

However, the proposed action by the CFPB could change things. The regulator aims to shrink the typical late fee from around $30 to $8, a move that it said will save consumers up to $9 billion a year.

The rule is expected to be finalized in the coming months, although the WSJ report said it could face legal challenges that delay or diminish it.

Meanwhile, the health of the American consumer is also declining, with credit card delinquencies on the rise, according to new findings by the Federal Reserve Bank of New York.

A report earlier this week from the bank’s Center for Microeconomic Data showed that around 8.5% of credit card balances — and 7.7% of auto loans — have moved into delinquency.

“Serious credit card delinquencies increased across all age groups, notably with younger borrowers surpassing pre-pandemic levels,” the center Tuesday (Feb. 6).

Looking at the percentage of loans that have shifted into serious delinquency status, 6.4% of credit card data had reached that designation, at more than 90 days delinquent, compared to 4% last year at the same time.

It’s a situation that has hit younger consumers harder than others. The Fed’s data showed that 9.6% of card debt held by borrowers between 18 and 29 years of age was past due by 90 days or more, compared to 7.6% last year. For borrowers 30 to 39 years old, the 90-plus-day delinquency rates were a respective 8.7% in the fourth quarter of last year and 5.7% in 2022.

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