In this article, banks that issue credit cards used by millions of consumers raised interest rates and introduced new fees over the past year in response to an impending regulation that most experts now believe will never take effect. Synchrony and Bread Financial, which specialize in issuing branded cards for companies including Verizon and JCPenney, have said that the moves were necessary after the Consumer Financial Protection Bureau announced a rule slashing what the industry can charge in late fees. Sanjay Sakhrani, a KBW analyst who covers the card industry, mentioned that Synchrony and Bread were the most impacted by the rule. However, the consensus now is that the rule won’t happen.
The regulation intended to save consumers money has instead resulted in higher costs for some. Rates on a wide range of retail cards have increased in the past year, reaching as high as 35.99%. Synchrony and Bread raised the annual percentage rates (APRs) on their portfolios 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 began boosting rates on some cards in late 2023 in anticipation of the CFPB rule. The agency 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 default 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 stop its implementation.
While the rule is held up in courts, card users are already facing higher borrowing costs and fees. The impact will rise as consumers accumulate fresh debts for holiday spending. Banks like Synchrony adjusted rates and fees due to regulatory changes to continue providing credit. Customers can avoid fees by paying off balances in full and opting out of paper statements.
The surge in borrowing costs will affect consumers with lower credit scores who are more likely to have store cards from Synchrony and Bread. These customers may turn to co-branded cards as alternatives. Larger banks have also raised rates, with Barclays and Citigroup increasing APRs on various cards. Capital One opted to hold back on certain investments to offset the CFPB rule impact.
The fate of the CFPB rule was uncertain even before it was set to take effect, and with the election of Donald Trump, the expectation is that the next CFPB head won’t likely keep the effort alive. Synchrony managers were noncommittal about reversing the higher APRs and fees if the rule were to go away.
