I was recently reading a story in the Wall Street Journal about consumers that have credit cards with major retailers (e.g. Gap, Macy’s, Best Buy, etc.). Due to federal regulations, consumers will no longer be able to get instant credit when they are at the cash register. The Federal Reserve is forcing retailers to gather more information about customers including pay stubs and income information before providing them with credit. In this world of instant gratification that would be a huge blow to the retail industry. For years retailers have been able to convince consumers to apply for store credit to receive an additional 10-15% off their first purchase. In many cases, consumers would accept the store credit and retailers would provide an upfront discount in hopes of making money off of the consumer on the backend. If the consumer does not pay off the balance in 30 days, interest will be charged to the customer, thus off-setting the upfront discount. Most store cards have interest rates that start at 21.99%, regardless of your credit score.
I was surprised to learn that in the third quarter of this year all of the sales at Macy’s were rung up on store branded credit cards. With unemployment as high as it is right now and economic uncertainty surrounding the country, how many people do you believe will be able to pay off their balance in 30 days? I suspect not that many, which will make the upfront discount null and void.
Getting back to the new proposed regulations, I think this is a good thing. As Americans we are so dependent on credit, maybe it will force retailers to go back to the basics. I remember when you could have Gap coupons mailed to you to use in-store. The Gap corporation does not offer coupons anymore. You have to use your store card to reap the benefits of the discounts being offered. Retailers make their money off of the interest that customers are paying for their purchases. I think it is good that the government is willing to watch out for the consumers that are spending recklessly. Generally I am in not in favor of government intervention. Overtime I suspect that if these proposals are made law, instant credit will decrease because customers will be less likely to share financial information.
#1 by Lisa Pasquale on December 9, 2009 - 3:31 AM
I agree with you in the sense of companies making people use their cards to recieve the special discounts and promotions the store holds. I, personally do not carry credit cards with me at all, except a bank debit/visa card because I got myself into credit card debt and then pulled myself out and never will fall into the trap again. I think that it’s great that companies will not be able to give instant credit anymore without the proper verification.
#2 by Diana Santoro on December 9, 2009 - 3:57 AM
I agree to an extent that they should do somethig about giving just about anyone instant credit in the stores. I agree with it for the fact that the unemployment rate is so high and people are getting these credit cards that they cannot pay off. The goverment needs to do something about how much debt that americans are in. So if one way of fixing it is by making it some what harder to get the instant credit the stores then that is what they should do. Consumers should realize even though they maybe gettin the 10-15% off of there purchase and maybe receiving some coupons in the mail, is it worth to pay the high interest rate. No matter how you look at it when you use a credit card you are paying more then you would if you were to pay with cash. It is very convenient in many ways exspecially because if you do not have the money at the time you can still by what you want. So in ways if the law is passed it could help nout the american people for the fact that they will not be in as much debt as they are, and also because they will not be spending money they do not have.
#3 by Ed McManus on December 9, 2009 - 8:51 PM
These regulations will have an effect on how the retailers do bussiness
As the credit-card industry reinvents itself amid a dismal economy and a new regulatory regimen, consumers are rebelling. They’re going debit.
Some 58.2% of card transactions are now paid for with debit cards, compared to 41.8% with credit cards, according to data from the Nilson Report. Debit cards now represent 38.3% of card dollars spent, compared to only 26% in 2002.
Let hope we learned our lesson.
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