Lowe's customers slam retailer for 'predatory' 31.99% credit-card APR

By Venessa Wong

'These interest charges could be astronomical on a big purchase,' says one credit-card expert of the 31.99% interest rate on the Lowe's credit card

When John Gouveia needed a new washer and dryer in September 2021, he signed up for a Lowe's (LOW) credit card. The card's annual percentage rate at the time was 26.99%. "I realized that 26.99 is ridiculous, but we definitely needed the washer and dryer," Gouveia told MarketWatch. And cardholders get a discount on their purchase, he said. Later on, when he needed a new freezer, he also put it on his Lowe's card.

Gouveia, 68, from North Carolina, said the monthly payments were manageable, but the interest rates steadily rose. He carries a balance on the card, but "I've never been late or anything," he said. "I've been an excellent payer since 2021." When he recently got notice that the APR on his Lowe's card would be rising to 31.99% - despite his on-time payment history and 760 credit score, which is considered "very good" - he called the number on the card and tried to negotiate a lower rate and was denied.

"The audacity of jacking it up to 31.99 is really arrogant," he said. His frustration with Lowe's has reached a point "where I don't even walk in that store anymore," he said. Gouveia compared it to "'loan sharking" and "out-and-out interest-rate gouging."

Gouveia isn't the only angry Lower's customer. Many people who use Lowe's credit cards, which are provided by the financial-services company Synchrony (SYF), have been complaining about the recent rate hikes on social media. One Reddit user described the increased APR as "loan-shark rates." "Predatory as hell," another wrote. Users have also been objecting to a $1.99 fee that the credit-card company is now charging customers who want to receive their bills on paper.

Lowe's and Synchrony did not respond to requests for comment. Synchrony said it could increase annual percentage rates and implement other fees in a recent filing with the Securities and Exchange Commission. Some analysts have said that banks may seek to raise fees and interest rates on store cards in response to the Biden administration's crackdown on credit-card late fees, which could cut into the revenues that store cards generate. Synchrony, for example, gets about 16% of its revenue from late fees, according to Morgan Stanley analysts.

Because Lowe's sells many big-ticket items - including appliances, cabinets and tools - "these interest charges could be astronomical on a big purchase," said Ted Rossman, senior industry analyst at Bankrate.

Following a period of high inflation, consumers are sensitive to economic pressures. "With many individuals already struggling with financial uncertainties, an abrupt increase in the cost of credit can worsen financial stress and put a strain on household budgets," said Wallethub analyst Cassandra Happe.

Interest rates on credit cards have been rising across the board (doubling from 2013 to a record high in 2023), with the average now 20.75%, according to data from Bankrate. The average on store cards, which typically have a higher APR, was 28.93% as of October, the last time Bankrate analyzed retail cards specifically.

"Lowe's is on the high end, but it's got plenty of company" from other store cards with rates above 30%, including Wayfair (W), Walgreens (WBA), Jared and Kay Jewelers (SIG), Rossman noted.

While interest rates above 30% used to apply almost exclusively to store-card holders with subprime credit, these days, Rossman said, "it's become the norm for anybody who carries a balance, and that's been pretty shocking." He added that the Federal Reserve hasn't raised interest rates since last summer, "so it seems to me that this interest rate was more of a business decision."

Paul Maxwell, a retired veteran in upstate New York, said the 10% military discount on Lowe's card appealed to him, but, "I'm less enthused about doing that now, and it's 30-something percent interest." The $1.99 fee for paper statements pushed him over the edge, as he is in the habit of monitoring and paying all of his bills by paper, and is reluctant to "give them the keys" to his bank account. "I was like, 'So you're increasing my charges, percentage-wise, and you're going to charge me, I think, a fairly large fee from zero to $2 a month for the privilege of getting a paper bill,'" he said.

Maxwell plans to keep the card for discounts on large purchases - some of his tools, for example, have parts or batteries he can't find at other stores - but he will no longer use it for small purchases. "I no longer perceive them as giving me a good deal," he said.

In a WalletHub review, Lowe's store card earned three out of five stars. While it charges no membership fees and offers an initial 20% discount for opening a card, WalletHub notes that it has a "high regular APR." Cardholders do not pay interest if they pay their balance in full by the end of the statement period, but they are charged interest on any remaining balance.

While the Lowe's card offers a "deferred interest" plan - which means there may be a zero-balance promotional period - both WalletHub and Rossman warned that users can be hurt by this feature. If the balance is not 100% paid off by the end of the promotional period, the borrower will owe interest on the full amount of the original purchase.

"Even if you had $1 left, they're going to go back and charge you retroactively for that average daily balance times the daily interest rates back to the start of the promo," Rossman said. Deferred interest is "something that's really sneaky and important to be aware of," he said.

The Consumer Financial Protection Bureau, a federal consumer-watchdog agency, recommends that people stay mindful of when the deferred-interest period ends, make more than the minimum payment during that time, and try to pay off the balance before the period ends.

Here are some tips to keep in mind about using retail credit cards:

Interest rates tend to be higher on store cards

Store cards are often promoted at checkout and many offer discounts to new customers. They're also available to people with low credit scores. However, the interest rates tend to be higher than other bank credit cards.

Cardholders can call the credit-card company to negotiate a lower rate, although it doesn't always work, said Matt Schulz, author of "Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life," and chief credit analyst at LendingTree. In that case, ask for alternatives: "Maybe they can give a discount on your next purchase. Maybe they could bump up your status or give you extra points. Don't settle for just getting anything that they'll give you, but it may make sense to open yourself up to other possibilities," he said.

And if the credit-card issuer is offering no options, threaten to close the card and see if they become more receptive to helping you. But keep in mind that closing credit cards can negatively impact your credit score - so don't do so hastily, Schulz said.

If you are carrying a balance on a high-interest store card, consider a balance transfer

This is especially true if you are nearing the end of the deferred-interest period. "I think a good fallback would be a 0% balance transfer card," said Rossman. "Open up a new card that has a 0% promo for up to 21 months ... just move the debt over." Pick a bank card with a 0% promotion that doesn't have deferred interest, and has a lower APR than the store card. If there's any balance at the end of the promo period on this new card, "yes, you're charged moving forward, but they don't go retroactive," Rossman said.

Remember that credit-card rewards and bonuses are really only beneficial if you pay off your balance in full

Even sign-up bonuses on store cards can be smaller than you expected, Rossman said, because they are often capped at a certain amount. The current Lowe's bonus, for example, is a one-time discount of 20%, up to $100. As for the everyday card rewards (it's 5% off eligible purchases at Lowe's), "You don't want to pay 32% interest just to get 5% cash back," he added.

Bill Peters contributed.

How have higher prices affected your life and how you think about the U.S. economy? Let us know at readerstories@marketwatch.com. One of our reporters might reach out to you to learn more.

-Venessa Wong

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-29-24 1051ET

Copyright (c) 2024 Dow Jones & Company, Inc.