Retailers Hurting From New Credit Card Legislation
The promised changes that the Credit CARD Act is bringing is scaring many credit card issuers, not least of whom are retailers with their own store branded credit cards.
The Credit CARD Act sees full activation next year but, this year, drastic credit card industry changes are already being widely seen. As Brad Jolson, Fair Isaac Corp.’s risk management solutions senior director puts it, the new credit card rules are making credit issuers “tighten up” in anticipation of the new changes. FICO is a major player in the credit industry. The Minneapolis based company provides the most widely used credit scoring formula in the credit industry.
A July study from TowerGroup, a financial research and advisory firm from Needham, Massachusetts also shows that available credit for U.S. consumers dropped to $3.6 trillion for the year 2009 after it peaked at $4.7 trillion last year, 2008.
Retailers are very wary of what the new rules will be bringing. CFO of Stage Stores Inc., Edward Record voiced out a common sentiment in the retail industry, saying, “We’re scared to death of what this law is going to do”. Stage Stores Inc operates from Houston and runs 759 stores which includes the Bealls and Peebles chains. Record added that the new law is sure to bring down consumer spending.
One particular area where Stage Stores are getting hit hard are with store branded credit card sales. One third of the sales that Stage Stores sees are from store branded credit cards. Credit cards from other card issuers account for one fourth. Record however expects the credit card law to affect primarily general purpose credit cards in his stores since, he says, they have been quite conservative with their own store branded credit cards.
Supporters of the new credit card law argue that the new law is going to protect consumers from abusive credit issuer practices and will place more cash available at their disposal as well. This will ultimately benefit not only consumers but retailers as well. Carolyn Maloney, a sponsor of the new law and a Democrat Representative from New York says that some card issuers may be hurting sales at retailers by hiking up their interest rates in anticipation of the coming new credit card law.
In a telephone interview, Maloney said that a lot of the damage done is “self-inflicted”. According to her, virtually all of the consumers she has talked to regarding her credit card reforms have said that they liked it.
