Private Label & Co-Branded Credit Cards Dwindling
More difficult to find or be approved for co-branded credit cards…
Private label credit cards are becoming a thing of the past with more and more retailers signing on to offer co-branded credit cards that are managed by a third party. Although covering only a small corner of the market, these cards tend to be held by riskier borrowers with less robust credit histories and fewer credit options. Private label and co-branded credit card debt in the U.S. is well over $100 billion, according to a Nilson report. Losses on these cards are rising faster than the general credit market, reaching a three-year high of more than 10% compared to general purpose card losses of 7.5%. And while some retailers continue to offer these cards at their registers in exchange for a same-day discount, lenders have made it even more difficult to qualify, similar to what’s happening in the traditional credit card market.
Retailers entice customers to sign up for their cards by offering rewards, such as gift certificates and discounts. Same day discounts of up to 20% on purchases are not uncommon. Private and co-branded credit cards are often promoted on sales floors by employees who work on commission. Co-branded credit cards do not generate the kind of loyalty to a specific retailer that traditional private-label cards do, and retailer inevitably lose some sales to competitors. However, the bundled-in rewards programs often require cardholders to return to the sponsoring retailer to claim their free merchandise.
Private and co-branded credit cards account for about 11% of outstanding credit balances but have charge-offs that are close to 2% higher than general purpose cards. Two of the largest store-branded credit card issuers, JPMorgan Chase and General Electric, are now facing a rebellion by their customers who now carry defunct retail cards. Many consumers are having to make tough decisions about which bills they can pay; and a closed card, with no rewards, from a company that is no longer in business doesn’t lend itself to loyal payments.
Credit cards from troubled retailers, like Circuit City and Linens ‘n Things, have been deactivated following liquidation. To add insult to injury, Circuit City cardholders, whose debt is owed to JPMorgan Chase, boosted late charges and interest rates. With benefits gone and no way to use the card, visitors to the Circuit City web site now receive this message: “Circuit City rewards are no longer redeemable. We apologize for any inconvenience this may cause.” With fee increases and revoked benefits - customers may not be forgiving.
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