Not too many retailers choose to go against consumer trends, but R. H. Macy & Co. is doing just that in its credit card business.
The owner of Macy's California, Bullocks and I. Magnin department stores is raising the interest rate on its credit cards, even though overall interest rates and rates on many bank-issued cards have fallen.
The company is boosting rates to 21.6% from 19.8%, making its cards among the most expensive in California. Bullocks' customers learned of the hike in notices mailed last week.
The rate hike sets Macy's apart from banks, department stores and other credit issuers. Retailers doing business in California have kept rates steady the last year or so, while banks, such as Citibank, have slashed rates on their Visa and Mastercard accounts to attract increasingly rate-conscious consumers.
The Macy's rate boost comes while a state Assembly committee is considering a bill that would reinstate limits--removed by the Legislature in 1988--on credit card rates. The measure, sponsored by Assemblyman Rusty Areias (D-San Jose) and similar to federal legislation that failed last year, isn't expected to pass.
Nonetheless, the legislation sends a signal that "we believe rates are too high," said Areias aide Jody Fujii.
According to Macy's, the rate boost was part of an agreement last spring to sell its $2-billion card business to General Electric Capital Corp. Macy's subsequently filed for bankruptcy protection.
Though GE Capital actually owns Macy's credit card business, the sale agreement gives Macy's a say in marketing decisions, including the rate charged on card balances, a Macy's spokesman said.
"GE said that this was the rate they had to have to give themselves a fair return while extending credit to as many shoppers as possible," said Michael Freitag of Kekst & Co., which handles public relations for Macy's.
Calls for comment to GE Credit in Stamford, Conn., were referred to Macy's.
The California Retailers Assn. said the cost of running credit card businesses has risen in the last year, as a growing number of financially strapped consumers have either skipped or delayed payments. Kevin T. Higgins, an editor at Chicago-based Credit Card Management, an industry trade journal, said Macy's decision to close a number of stores across the country is probably worsening credit card losses.
"When a store closes, all that is left is the bills," Higgins said. "People have less incentive to pay."
