On December 18, the CFPB released an issue spotlight titled “The High Cost of Retail Credit Cards,” which described risks associated with retail credit cards. According to the report, retail credit cards typically have higher APRs compared to general-purpose credit cards, with 90 percent of retail cards reporting a maximum APR above 30 percent (the average APR was 32.66 percent) as compared to only 38 percent of non-retail general-purpose cards.

The issue spotlight asserted while retail credit cards are more accessible to consumers with lower credit scores, the less restrictive underwriting process often results in higher debt levels and increased risk for consumers. The CFPB observed: (i) consumers with these cards were more likely to carry a balance making only the minimum payment; (ii) retail cards typically carry higher fees; and (iii) deferred interest promotions can lead to significant charges if balances are not paid off in time. As a result, retail cards carry a higher annualized charge-off rate than general purpose cards.

Additionally, the report noted a high concentration in the retail credit card market, with four large banks issuing over 80 percent of the cards. The Bureau stated this concentration was attributed to exclusive long-term contracts and high entry costs, which limit competition. The CFPB also argued that profit-sharing agreements between retailers and issuers incentivized marketing efforts to encourage consumer spending. The CFPB characterized such marketing efforts as aggressive and noted this sometimes leads to consumer dissatisfaction and complaints about sales tactics.

The CFPB stated that it plans to continue monitoring the market to ensure compliance with consumer financial laws and address potential consumer harm.