What: The rise in credit card delinquencies and a proposed cap on late payment fees pose significant risks to US department stores like Macy's, Nordstrom, and Kohl's, which heavily rely on income from profit-sharing agreements with partner banks.

Why it is important: Department stores have been facing a prolonged decline in their core retail business, and the income from credit card agreements has been a critical lifeline. With new regulations potentially capping late fees and credit card delinquencies increasing, these retailers may see a significant impact on their operating income, further challenging an already struggling sector.

US department stores are facing a precarious situation as credit card delinquencies rise and regulations propose to cap late payment fees. Despite not owning their credit card portfolios, major retailers like Macy's, Nordstrom, and Kohl's derive a significant portion of their operating income from profit-sharing agreements with banks. These agreements are lucrative due to high interest charges and late fees associated with store-branded credit cards. However, a proposed rule to cap late fees could severely impact these retailers' earnings, particularly Kohl's, which could potentially face an operating loss without credit card income. The impending changes underscore the vulnerability of a retail sector already in decline, overly dependent on credit-related income amidst faltering sales growth and increasing delinquencies.

Why US department stores have most to fear as credit card debt sours