With the Biden administration's effort to reduce credit card late fees now hanging in legal limbo, will some card issuers manage to benefit from the entire saga?
Bread Financial Holdings, a major issuer of store-branded cards, this week revised its revenue guidance upward on the assumption that the contested late-fee rule won't take effect before 2025. But the Columbus, Ohio-based company also continues to move ahead with plans to make up some of the revenue that it stands to lose if the late-fee rule does eventually get enacted.
As industry groups challenge the Consumer Financial Protection Bureau's late-fee rule in federal court,
"Although litigation is ongoing and timing and outcome unknown, we will continue to take actions to mitigate the potential financial impact," Ralph Andretta, Bread's president and CEO, said Thursday during the company's quarterly earnings call.
At least two other card issuers —
Bread, meanwhile, is betting that the CFPB rule, which would generally cap late fees at $8, won't take effect this year. For now at least, card issuers can charge consumers $30 for their first late payment and $41 for subsequent ones.
Earlier this year, Bread was baking the partial-year impact of the late-fee rule into its 2024 financial outlook. For the full year, the company was projecting that its revenues would be down by the mid- to high-teens.
In its latest guidance, which assumes that the late-fee rule won't get enacted this year, Bread projects a more modest revenue decline — low- to mid-single digits.
In explaining the company's decision to revise the assumptions that go into its financial guidance, Chief Financial Officer Perry Beberman noted that a legal stay is in effect, hearings still need to be held and court rulings can be appealed.
Still, Bread is moving ahead with increases in annual percentage rates and fees for customers who elect to receive paper statements — two steps that are designed to reduce the financial impact of the late-fee rule. Company executives said Thursday that the updated outlook takes into account those pricing changes, though they are not material to the company's full-year guidance.
"What we are seeing with the paper statement fee, as you would expect, many are opting to go digitally, which will benefit our expenses over time," Beberman said. "So I'd say everything that is happening right now is happening as expected."
A Bread spokesperson did not respond Friday to a question about whether the company plans to maintain the paper-statements fee and higher APRs in the event that the CFPB's late-fee rule ultimately gets blocked in court.
In the second quarter, Bread reported net income of $133 million, which was down $1 million from
Bread's quarterly net loss rate climbed to 8.6%, up 60 basis points from the same period last year, but the credit performance was consistent with the company's expectations.
David Rochester, an analyst at Compass Point Research & Trading, said that he viewed Bread's second-quarter results and its revised guidance favorably. Shares in Bread rose by 4% on Thursday.
"With credit trends remaining a key focus for investors," Rochester wrote in a research note, "we were pleased to see losses continue to move lower in June."
Also during the second quarter, Bread announced a multiyear partnership with Saks Fifth Avenue — adding the upscale fashion chain to a diverse pack of retail partners that includes Ann Taylor, Big Lots, Eddie Bauer, Forever 21 and GameStop.
