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The CFPB laid out its rules on credit card late fees with the cap of $8 vs an average of ~$32 which will take total fees from ~$12bn to $2bn. Late fees make up a material portion of card portfolio revenue (we think 15% to 30%) with essentially 100% flow through to the bottom line. This 75% cut to late fees will be a material headwind to credit card profit sharing for the retailers which, in several cases, makes up a majority of total EBIT.
On this call with Hedgeye Financials Sector Head Josh Steiner we review the dominoes that are likely to fall as part of this announcement, the timeline of when we might see the hit on retail P&Ls, and what the earnings risk might look like. Some of the more notable names with big private label credit card exposure are KSS, M, JWN, DDS, BBY, TGT, GPS, and CURV among others.