Credit & Debt

No More Instant Credit at the Cash Register?

New Federal Reserve rules will make it harder for retailers to extend credit on the spot.

The days of instant credit card offers at store checkout counters may be over -- they’re certainly under siege from new regulations. The Federal Reserve will soon require lenders to review a borrower’s income before granting credit -- something that can’t be done easily in a crowded line with little privacy. “Confirming the ability to pay is a difficult thing to do on the spot,” says Ken Paterson, director of the credit advisory service at Mercator Advisory Group.

The rules come as part of a congressional overhaul of credit card practices that goes into effect Feb. 22. Lenders that don’t comply with the new measures face enforcement actions and fines.

Reviewing a potential borrower’s income makes the credit check process far more cumbersome for retailers. Stores currently use credit bureau data, which look at borrower payment history, to approve card offers and raise credit limits instantly while a customer waits to pay. While credit agencies are working on how to account for income in their models, a solution is a long way off and could prove too costly. Retailers worry that shoppers will be reluctant to hand over income data to store clerks or be more likely to lie on applications. “It turns the transaction into something uncomfortable,” says Mallory Duncan, senior vice president at the National Retail Federation.

The new rules will also force retailers to modify their credit programs, which they use to boost sales and increase customer loyalty. With more stringent standards in effect, shoppers will face further rejections and drawn out, complicated approval processes.

Larger retailers may move the credit approval process away from checkouts into more private customer service desks, staffed by specialists. They will also push card offers on the Web. “It’s a lot easier to ask for data online,” says Gwenn Bézard, research director at the Aite Group.

Some low end retail stores may opt out of the credit business altogether. With fewer customers being approved, they could instead develop other loyalty programs that appeal to a broad range of shoppers. “Retailers can now even send discounts and promotions right to cell phones,” says Dennis Moroney, research director at TowerGroup.

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