A last minute provision inserted into the credit card bill release by the Senate last Tuesday has major retailers in the country a bit worried.
The last minute provision of Sen. Robert Menendez prohibits companies that issue credit cards from opening credit card accounts without first thoroughly considering the ability of the bower to meet the required payments. The rules on just how companies can comply with the provision will be left to the Federal Reserve.
The provision could have a debilitating effect for retailers, specifically those who issue store-branded credit cards.
Some major retailers issue their own credit cards which usually offer perks to customers, specifically aimed at encouraging customers to purchase big-ticket items. Major retailers put their sales from such credit cards as high as one third of all their sales. Store-branded credit cards are usually offered and approved immediately, based on the credit cardholder's credit score. These cards also have special perks to entice consumers, such as a “no cash out” offers, discounts, and 0% interest offers that last for a period of several months. These cards usually have large interest rates that usually average at 20%.
With Sen. Menendez's provision in place, retailers are worried that their ability to issue cards to consumers within minutes would end. A more thorough credit score check would take several days, as the company would have to examine the consumer's income and debts or else get a complete credit report. The long wait, retailers say, would jeopardize their ability to complete more big-ticket sales as well as slow down their ability to market their credit cards to a large number of customers.
Sen. Menendez said during an interview that the provision was meant for application to all types of credit cards, which means that store-branded credit cards will be affected as well. However, the senator said that issuers may be able to meet the rule's standards by relying on the self-reported income of borrowers.
“I think the overwhelming universe of those who apply, apply honestly", the Senator said.
Senior Vice President of the National Retail Federation Mallory Duncan said, “It is a potentially problematic amendment”. However, he does concede that, should consumers find it inconvenient, lawmakers may revisit the provision at a later time.
Consumer Federation of America Leigislative Director Travis Plunkett also released a statement supporting the provision, saying that it supports the bill's primary goal of encouraging sustainable credit. Plunket also clarified that his consumer group has no objections against deferred payment arrangements as long as the terms are fair and the consumers are well aware of the details of the agreement.