The credit card company Synchrony Financial is hiking interest rates it charges to its customers, part of a series of steps to mitigate the financial impact of a Consumer Financial Protection Bureau rule that would shrink its late-fee revenue.
The outcome of the CFFB's effort to slash credit card late fees
But with only three weeks left before the implementation date, Synchrony can't count on those outcomes. CEO Brian Doubles said Wednesday that the company is "executing our plan" after starting to roll out changes to its credit cards in December 2023.
Synchrony, which offers credit cards in partnership with retailers and other brands, has been raising annual percentage rates and adding other fees to limit the rule's impact on the company's bottom line.
"And it's important that we do," Doubles said during the company's quarterly earnings call, arguing that the alternative is to cut back on offering credit to customers who seek it.
"Our goal from the beginning has been to protect our partners and continue to provide credit to the customers that we do today," he said. "And unfortunately, that's impossible to do without these offsets."
In a notice received this week by the holder of a Synchrony-issued T.J. Maxx credit card, the card company stated that the APR for purchases would increase to 34.99%. That's substantially above the average interest rate on new credit card offers of 24.7%,
Meanwhile, the T.J. Maxx card's penalty APR, which may be applied after a customer has made a late payment, would rise to 39.99%. The notice also said that Synchrony is adding a $1.99 monthly fee for paper statements.
A second customer, who has a Synchrony-issued Walgreens credit card, received notice that the purchase APR was increasing from 23.24% to 25.99%, and that the APR for cash advances was rising from 29.99% to 34.99%.
The CFPB's rule would generally slash the maximum late fee on credit cards to $8, part of the agency's campaign to crack down on so-called "junk fees" in the banking industry. Credit card companies can currently charge $30 for first-time late fees and $41 for subsequent late payments.
Analysts have said the late-fee cuts would have an outsized impact on Synchrony, which focuses more on everyday card customers rather than those with elite travel cards. The bank's income on late fees last year was roughly $2.7 billion.
The lawsuit challenging the CFPB rule was brought by the U.S. Chamber of Commerce and other industry groups, but Synchrony has also been part of the legal skirmishing.
In March, the CFPB accused the plaintiffs of "forum shopping,"
Other credit card issuers are likely to follow the same approach as Synchrony, Doubles said on Wednesday, calling the rate and fee hikes a "relatively standard playbook" for dealing with the CFPB rule. Synchrony is also factoring in the changes as it looks to ink new credit card partnerships.
"While we're hoping for a better outcome on the litigation, obviously, you've got to build in scenarios where we have a much lower late fee," Doubles said.
The company's stock jumped more than 5% on Wednesday after it reported healthier borrower repayment trends, announced that it plans to buy back more of its shares and beat analyst expectations on profitability.
"At first blush, the results look good, though uncertainty around the CFPB rule is likely to persist," Saul Martinez, an analyst at HSBC Global Research, wrote in a note to clients.
Ed Groshans, a senior policy and research analyst at Compass Point Research & Trading, said in a recent research note he expects the Fifth Circuit Court of Appeals to issue an emergency action blocking the rule ahead of its implementation date.
Even so, the appeals court has set a more leisurely schedule for the case, including deadlines on briefs from lawyers that go beyond May 14.
While emergency judicial action is likely, card issuers are moving forward by sending disclosures to customers under the assumption that the rule will take effect next month, said Alan Kaplinsky, senior counsel at Ballard Spahr.
"Given where things are right now, any big bank is going to have to assume the rule is going into effect, even if only for a short time," Kaplinsky said.
Kate Berry contributed to this story.
