April 01, 2010
-
News: Retailers Dealing With CC Reform
It's no secret that lenders and consumers alike have been greatly affected by the Credit Card Accountability, Responsibility and Disclosure Act 2009. However, how many Americans have considered the impact to retailers. Consider the fact that in anticipation of the new rules, credit card companies stepped up abusive activity by raising interest rates and implementing new fees. In response, Americans significantly reduced credit card spending. Although consumers use credit cards to pay for a number of expenses including medical and food, a large portion of card spending occurs in the retail store.
Because retailers have been focused on fighting the battle of interchange fees, little has been mentioned about the impact of the new credit card law on the industry. The simple truth is that retailers have lost a significant amount of profits as a result. Some retailers have been dealt a double whammy; those that offer co-branded credit cards or those that own their own cards. Companies like Nordstrom or Signet Jewelers Ltd who own their own cards also generate interest and fees from cardholder's account balances. For some of these retailers, card sales amounts to over 50 percent of sales. Reduced spending, decreased interest and fee income, and reduced sales all adds up to big losses.
Another benefit of credit cards to retailers is the acquisition of valuable information on their customers' spending habits. Retailers use this information to target customers with marketing strategies and incentives. In addition to the loss of sales, the loss of this data could be very harmful. Several retailers have released statements saying their card business has experienced a sharp decline since the new law was introduced. Nordstrom stated in its monthly filing that sales have been "significantly adversely affected." Despite decreased sales, Nordstrom expects a rise in card income to increase by over $45 million for 2010. Other retailers that get a cut of the interest and fee income off their co-branded cards, say they expect to re-negotiate contracts before renewing.