Retailers across the U.S. are making headlines for significantly increasing the interest rates on their store-branded credit cards. From September 2023 to September 2024, over 50 major companies—including Big Lots, Gap, and Petco—raised Annual Percentage Rates (APRs) to record highs, some nearing 36%. This sharp rise occurred just before the Federal Reserve started cutting rates, prompting consumer advocates to question the motives behind these hikes.
Soaring APRs: Profits Over Policy
The average store card APR reached an all-time high as companies acted preemptively to safeguard their profits before the Federal Reserve’s rate cuts. Ted Rossman, senior industry analyst at Bankrate, explained: “Retailers pushed rates higher because the Fed had been raising rates for years. But now, instead of following the Fed’s cuts, they’re keeping them high for profit.”
Big Lots led the pack with a 6% increase to 35.99%, followed by Gap and Petco, which raised rates by 5% and 4.5%, respectively. Even brands like Macy’s, known for their longstanding credit card programs, have APRs exceeding 30%, leading to consumer frustration.
The Hidden Costs of Convenience
Many consumers sign up for store cards during promotional events, unaware of the financial burdens lurking in the fine print. For instance, a small business owner, Jasmine Matheney, shared her experience: “A discount offer reeled me in, but I didn’t realize how high the fees were. I defaulted, and it took years to rebuild my credit.”
Rossman echoed this caution, advising shoppers to think carefully before signing up. “If you plan to carry a balance, these cards are bad. Even a small balance can quickly spiral into significant debt,” he warned.
A Strategy Rooted in Profit
The strategy behind the increase in APR becomes evident when looking at the numbers. On average, store card APRs rose 1.52 percentage points in a year, compared to just 0.08 points for traditional credit cards. This disparity suggests that retailers deliberately took action to hedge against expected revenue declines.
Macy’s, for example, saw its credit card program contribute 49% of its operating profits in 2022. The retailer acknowledged the profitability of these high rates in its financial statements, with finance chief Adrian Mitchell stating, “Consumers are holding onto balances longer, which has boosted revenue.”
Consumer Backlash: A Call for Transparency
Like Brian Robin, consumers with strong credit scores also feel the sting of rising rates. Robin, who holds a credit score 744, expressed his frustration with Macy’s: “I’ve never missed a payment, yet they raised my rate. It feels unwarranted and makes me less likely to shop there.”
Despite some companies like Nordstrom and TJX Companies passing along small rate cuts after the Fed’s adjustment, APRs remain higher than they were a year ago, emphasizing maintaining profit margins.
The rapid increase in in-store card APRs underscores the need for consumer vigilance. Buyers should think twice before signing up for cards with seemingly enticing perks as the holiday shopping season approaches. Matheney summarized the sentiment best: “They lure you in with discounts but trap you with high fees. It’s their greed, not our benefit.”
Store cards may offer convenience, but with record-high interest rates, they are no longer the consumer-friendly tools they once were. Instead, shoppers should explore alternatives or use these cards cautiously to avoid unnecessary financial strain.
