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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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.
For weekly updates on topics to improve your business decisionmaking, click here.
-
Upgrades to the CBP Entry Process Ahead of Peak Summer Travel Could Streamline U.S. Border Entry for TravelersEnhanced processing could make international travel into the U.S. smoother and easier this summer.
-
I Don't Need Social Security. Should I Skip Benefits and Save Them for People Who Do?What happens when you forgo Social Security benefits?
-
AI Goes To SchoolThe Kiplinger Letter Artificial intelligence is rapidly heading to K-12 classrooms nationwide. Expect tech companies to cash in on the fast-emerging trend.
-
What To Know if You’re in the Market for a New Car This YearThe Kiplinger Letter Buying a new car will get a little easier, but don’t expect many deals.
-
Will Lower Mortgage Rates Bring Relief to the Housing Market?The Kiplinger Letter As mortgage rates slowly come down here's what to expect in the housing market over the next year or so.
-
Car Prices Are Finally Coming DownThe Kiplinger Letter For the first time in years, it may be possible to snag a good deal on a new car.
-
New Graduates Navigate a Challenging Labor MarketThe Kiplinger Letter Things are getting tough for new graduates. Job offers are drying up and the jobless rate is increasing. Are internships the answer?
-
When's the Best Time to Buy a Domestic Flight? The Kiplinger LetterThe Kiplinger Letter A new study by CheapAir.com has crunched the numbers.
-
Woes Continue for Banking Sector: The Kiplinger LetterThe Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
-
Anxious Flyers Take Note: The Kiplinger LetterThe Kiplinger Letter Whether it's the routes to avoid that have the most turbulence or the safest airline, we've got you covered.
