What: Department stores like Macy’s, Kohl’s, and Nordstrom face potential financial challenges due to a proposed rule by the Consumer Financial Protection Bureau to significantly reduce late fees on credit cards and rising delinquencies among credit card holders.

Why it is important: Credit cards have been a crucial profit source for department stores, with late fees and credit income contributing significantly to their operating income. The proposed reduction in late fees and an increase in delinquencies could severely impact these profits, affecting the overall financial health of these retailers.

Department stores have long relied on store credit cards as a significant profit booster, with credit income making up a large portion of their operating income. However, this critical revenue stream is under threat from two fronts: a proposed rule to slash credit card late fees and an uptick in delinquent accounts. The Consumer Financial Protection Bureau's proposed rule would reduce late fees from as much as USD 41 to just USD 8, potentially impacting the earnings of Macy’s, Kohl’s, and Nordstrom by a significant margin. Additionally, rising delinquencies, which have already impacted Macy's credit card income, could signal future problems for Kohl’s and Nordstrom. This situation presents a critical moment for investors to reassess the sustainability of department stores' reliance on credit card-related profits.

Credit card challenges threaten department store profits