Many Retailers Set to Boost Interest Rates on Their Credit Cards

Maybe it isn’t too soon to start thinking about doing your Christmas shopping--for next year.

That may be one of the few ways to beat rising interest rates for credit purchases at retail outlets across California.

Department stores, gasoline companies and other retailers are beginning to tell customers what they will do Jan. 1, when the state’s 18% legal limit on retail credit interest expires under a law passed by the California Legislature and signed by Gov. George Deukmejian this summer.

Suffice it to say that rates are not going down, though a few merchants are holding the line.

Among major national retailers, J. C. Penney says its interest rate on purchases in California will jump to 19.8% on March 1, while Sears told a group of consumer organizations it would increase its rate to 19.2% effective Jan. 1. In each case, the hike will not apply to outstanding balances.

Many of the state’s biggest department store chains--including Robinson’s, Nordstrom, Bullock’s and the Broadway--either have not decided what rate to charge or are not saying. I. Magnin will charge 19.8%, as will Macy’s, a major retailer in Northern California, according to the California Retailers Assn.

Mervyn’s, alone among big retailers that have declared their intentions, is freezing its credit card interest rate at 18%. The Hayward, Calif.-based chain has 94 stores in California.

“We think our customers will respond to that,” Vice President Sandra Salyer said Wednesday. “We think it gives us a competitive advantage.”

However, another merchandiser that targets the vast middle and lower-income market, May Co., is alerting customers that it will boost its rate to 19.8% on credit card purchases after Jan. 1. Outstanding balances are not affected.

May Gain Customers

Edgar S. Mangiafico, chairman of May Co. California, doubts the higher rate will cost his company any customers. The increase will impose a negligible charge--perhaps $2 a year--on the average May Co. customer, who pays only about $25 in interest annually, he said.

Rather, Mangiafico insisted, the freedom to raise interest rates will help May Co. attract new customers. After state legislators lowered the interest rate cap to 18% from 19.2% last January, May Co. turned down 21,000 credit applications--mostly, he said, from lower-income people who weren’t good credit risks at the lower interest rate, which made it more expensive for May Co. to extend credit.

Consumer groups find little solace in the argument that higher rates may make it easier for the less affluent to get credit.

Without a state limit on interest rates for the first time since 1959, they warn, the worst gouging is likely to be done by small companies, inner-city businesses and heavy advertisers who pitch their products to the poor.

“With department store credit cards, you’re dealing with a fairly well-informed group of consumers who, if the rates go up too high, are going to start complaining or are going to ask to use their Mastercard or Visa,” said Ken McEldowney, executive director of Consumer Action, an advocacy group in San Francisco.

“But with furniture stores or jewelry stores catering to people with bad credit, (customers) don’t have any alternatives and are less likely to complain about higher interest rates,” he said.

Real Sticker Shock

Interest rates on bank credit cards, such as Mastercard and Visa, were not subject to the state’s interest cap and vary widely.

Another concern, McEldowney said, is the lifting of a 12% cap on credit card balances above $1,000. “That has the potential for real sticker shock for consumers,” he said.

Gasoline merchants have been slower to raise rates than the department stores. Chevron, the largest gas retailer in the state that offers credit cards--Arco, its biggest competitor, does not--is not raising its rates for now. Neither is Unocal, though Shell’s rate will be going up.

Major retailers say they will continue to lose money on credit card operations, even with higher interest rates. May Co., for instance, lost $11.5 million on those operations in 1986, when the state lid was set at 19.2%, according to the California Retailers Assn. Robinson’s lost $10.5 million, and Carter Hawley Hale, parent company of the Broadway, lost $34.7 million.

Those costs, however, are a price the merchandisers willingly pay to bring customers in the door, Mangiafico acknowledged.