Credit card law worries some retailers

05.22.09
By Sarah Beldo

Is the era of applying for a department store's credit card at the cash register - and earning a percentage-off discount in the process - really over?

According to a report by Dow Jones Newswires, that is just what many American retailers are afraid of.

Store cards are a staple of the retail industry, often promoted to help encourage shoppers to go through with large purchases. The thinking goes something like this: you're getting 20 percent off anyway, so why not spend as much as you can today?

However, the credit card legislation that is expected to be signed into law by President Obama today could go some way toward discouraging that practice.

Retailers say they may soon be required to carry out a more thorough assessment of a shopper's credit report instead of giving instant approval based on credit score, as they did in the past, according to the article.

That is because one of the amendments to the bill states that credit card issuers must first "consider" whether or not a person is able to make their payments, a provision the retail industry suspects may obligate more time.

"It's a potentially very problematic amendment," Mallory Duncan, National Retail Federation senior vice president, told Dow Jones Newswires. "This new provision seems to suggest they want more [consideration than just a credit score.]"

While retailers fret, some consumer advocates may breathe a sigh of relief, as many have repeatedly cautioned consumers about the perils of store cards.

These types of cards typically carry a higher interest rate than those issued by banks, meaning that if you want to spread your payments out over a number of months you will end up paying more.

Meanwhile, the act of simply applying for a store card can ding your credit score.

Speaking with the Chicago Tribune, consumer advocate John Ulzheimer explained that "the credit inquiry could take you from Tier A to Tier B lending and can cost you a couple of hundred dollars a month [extra] when it comes time to buy a home or car."

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Store cards are a staple of the retail industry.