If a consumer doesn’t pay their credit card bill on time, they might get saddled with a late fee of $32, which is the average. The Consumer Financial Protection Bureau calls that a junk fee. And the Biden administration is trying to crack down on them by capping the late fee banks charge credit card users at $8 per transaction. That rule will go into effect on May 14.

This is good for consumers, maybe, but banks don’t love it. And it’s probably safe to say neither do retailers like Nordstrom, Macy’s and Kohl’s — stores that are already having a tough time. Credit cards have become an important piece of department stores’ bottom lines. One analyst estimates that Macy’s makes nearly half of its operating profits from its credit card program. 

When you think of credit cards, you might think of one of the big issuers, like Visa or Mastercard, or maybe banks. But credit cards were invented by retailers.

“In the beginning, this was just done as a bookkeeping thing,” said Bill Maurer, a professor of anthropology and law at the University of California, Irvine. “You know, in a notebook, behind the counter, essentially.”

These less formal lines of credit were the standard for a while. But eventually, stores started offering physical cards that looked like small metal plates.

“Kinda looked the same size and shape as a military dog tag that would have the customer’s information on it,” Maurer said.

The point was to create customer loyalty; it was the early 20th century and new stores were opening left and right. 

“Retailers and merchants really sought a way to get customers to keep coming back to their shop instead of going to their competitors to the point where some merchants almost functioned like bankers,” Maurer said.

Retailers eventually realized they are better at selling stuff than lending money, and banks took over the logistics. But store cards are still an important piece of their business today. They help retailers gather data on what people are buying and promote targeted discounts.

“I do remember that I was really excited to have a Bloomingdale’s credit card,” said Moody’s retail analyst Christina Boni, adding that these credit cards connect customers to the brand. 

Store cards encourage spending. They also generate another line of income because they have steeper interest rates than bank-issued cards; store card rates recently hit record highs of nearly 29%. 

Boni thinks the Consumer Financial Protection Bureau’s move to limit late fees will hurt department stores the most.

“It’s one more thing that they’re going to have to contend with and going to have to pivot, if you think about those lost dollars just flow directly right to the bottom line.” she said.

There will always be some demand for store cards, said Ted Rossman, a credit card analyst at Bankrate.com. It’s often easier to get approved for, say, a Gap card than an American Express — so it’s many peoples’ first line of credit. And sometimes, store cards are the only solution to a financial emergency. 

“Point of sale, easy financing, like, somebody who really needs credit now because they’re not going to be able to buy that new refrigerator or that new set of tires,” Rossman said.

But those customers are increasingly moving away from credit cards and are instead choosing buy now, pay later options like Affirm and Klarna, Rossman said. To lure them back, he said more retailers might move toward co-branded cards. Those are cards issued by the store that can be used anywhere, not just at the one brand. 

“A retailer like Costco, that’s a really popular card not just for Costco, but for gas and travel and for other things,” he said.

Retailers will also need to push their cards even harder. So we might experience that familiar moment at checkout even more when the sales associate motions toward that little pamphlet by the cash register.

“They tempt you, right? Like, ‘Do you wanna save 10% off today’s purchase or 20% off today’s purchase?'” Rossman said. 

Sounds pretty good — until you figure in that 30% annual percentage rate.