Department stores such as Macy's (Macy's) and Kohl's (Kohl's) have long used store-branded credit cards to drive purchases and receive cash.
Starting this spring, though, these credit cards will become less profitable.
According to a new regulation from the US Consumer Financial Protection Bureau (CFPB), the maximum credit card late fee limit for consumers is $8, while the retail industry currently charges an average late fee of about $32. This new rule still faces legal challenges, but is scheduled to take effect on May 14.
The new rules on late credit cards will benefit customers with overdue credit cards, but will affect the retailers' high-margin business.
Many US department stores earn profits from customers' credit card purchases, including interest from credit card purchases and late fees paid by those who fail to pay their debts in a timely manner.
Jane Hali, CEO and retail analyst at stock research firm Jane Hali & Associates, said that specialty retailers with store cards like Gap will feel the pressure, but department store revenue is already under pressure, and this will be paramount.
“We're talking about a weak area, so any revenue cuts in this area will be worse for them than in other areas of retail,” she said.
In fiscal year 2023, Macy's credit card revenue totaled $619 million, and Nordstrom's credit card revenue was approximately $475 million.
Meanwhile, Kohl's reports that “other” revenue for fiscal year 2023 was $924 million — a broad category that includes unused gift cards and third-party advertising on its website. According to estimates by Fitch Ratings, most of Kohl's revenue category comes from credit card spending.
In the financial report, the three department stores mentioned above did not disclose how much of their total credit card revenue comes from late fees.