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Secret perks: Why department store clerks are so pushy about credit cards

Shoppers exit Macy's on 34th St. in Herald Square in the Manhattan borough of New York, November 24, 2015. Black Friday and its discounts sales are not what they used to be. Shoppers, who received even bigger discounts closer to Christmas last year, are being cautious with their spending and willing to wait for deals, polls by Reuters/Ipsos and others show. REUTERS/Brendan McDermid (REUTERS)

It’s become a familiar part of the department store checkout experience — you deliver your items to the nice cashier, and the nice cashier delivers you a sales pitch about the store’s credit card. As millions of shoppers descend upon retailers this holiday season, don’t be surprised if the folks behind the register seem a little pushier than usual. They’re likely being rewarded for their efforts.

“Every day we’re asked ‘how many credit [cards] did you open?’ Pushing credit cards often seems like our number one priority,” said one Macy’s worker who asked not to be named because she is not allowed to speak about the policy publicly. Unbeknown to the customer on the other side of the counter, each time employees process a new credit card application, they earn a coupon for $2 to $5 worth of “Macy’s Money” (a kind of gift certificate workers can put toward future purchases at the store).

If a customer’s application is approved, they may get a 10% or 15% discount on their purchase, but they also walk away with one of the highest interest rate credit cards on the market (Macy’s charges a flat APR of 24.5%). If their application is declined, they walk away with a hard inquiry on their credit report and nothing to show for it. Workers, on the other hand, have nothing to lose. They get credit whether the customer’s application is approved or not.

“I know that if they apply it can hurt their credit but [managers] make you push it and push it,” the Macy’s worker said. “I try to be honest with people. I tell them to make a payment as soon as they make a purchase.”

A Macy’s spokesperson declined to comment on the incentives it uses to encourage workers to sell credit cards, saying “we do not disclose such details about our operations.” Another Macy’s sales associate working in North Carolina described the same incentive system.

Macy’s is certainly not alone in this practice. At Kohl’s stores, employees are rewarded with $1 to $2 per credit card application they process. Rather than getting a coupon, the cash is added to their paycheck, a former human resource manager who worked at Kohl’s for nine years told Yahoo Finance. Each Kohl’s store has a different daily credit card application goal depending on sales volume. At the store he worked for in Georgia, the manager said they typically strived for 30 applications in a day — on Black Friday, however, the goal would climb to 300 applications. To further sweeten the deal “individual stores might give candy or store-bought prizes,” the manager said.

Several years ago, some Kohl’s managers would routinely use store speaker systems to congratulate sales associates when they processed a new credit application. They stopped that practice after some workers and customers complained, the manager said. A Kohl’s spokesperson declined to comment.

Macy’s workers told Yahoo Finance part of their annual performance review was based on how many credit card applications they solicited throughout the year but they did not know exactly how heavily they impacted their reviews. The Kohl’s manager we spoke with, however, said credit card solicitations made up 20% of employee reviews, which are factored into pay raise decisions.

Big business

The average wage for a retail worker is just over $12 an hour, which makes it tough to blame them for doing whatever it takes to earn an extra buck — even if that means selling a pretty terrible credit card. Store-branded credit cards can mean big business for retailers, especially department stores, which have seen lackluster sales this year.

Retailers rely on getting more store-branded credit cards in customers’ hands to drum up more revenue, says David Morris, a retail analyst for Packaged Facts, who wrote a 2015 report on the private label credit card industry. This year, Macy’s will earn more than $1 billion in fees from its retail credit card program, double its 2010 earnings, Morris estimates. The report did not offer comparable stats for Kohl’s.

“At a time when retailers need all the help they can get, private label programs offering this type of revenue stream are very important,” says Morris. Store cards ensure the retailer will profit from each sale, since they don’t have to pay a percentage of each sale to another credit card issuer.

Overall, branded credit cards accounted for nearly one-third of all credit card purchases in 2014, according to the Packaged Facts report. The rate of consumers using department store cards increased by 9% since 2011.

Resist the sales pitch

A shiny new store credit card is a legitimate temptation. Stores typically use extra discounts to entice customers to sign up for these cards. When gift lists start piling up around the holidays, an extra 10% or 20% off is hard to resist.

Just be aware of what you’re signing up for. Interest rates on retail cards typically far exceed those on general purpose credit cards. Kohl’s Charge customers pay a flat rate of 23.99% and Macy’s card customers pay a flat rate of 24.5% (regardless of how high or low your credit score is). The average general purpose credit card APR (fixed) is around 13% now, according to Bankrate.

It’s because of these high interest rates that it’s often easier for someone with a poor credit history to get approved for a store branded card. The credit card issuers that back store cards want to keep retailers happy, so they loosen credit requirements to approve as many people as possible, says Nick Clements, founder of personal finance education site Magnify Money. Credit issuers also pay big bucks to service credit cards for retailers, and charging higher interest rates helps make up for that.

“There is a real danger that people with bad credit who are already in too much debt will get a line,” says Clements. “They just want access to credit and unfortunately don't think about price.”

Don’t get duped by the promise of a 0% introductory APR. Take the popular Apple-branded Barclaycard, for example. It offers 0% interest for 12 months. What some customers may not realize is that it’s a deferred interest rate, meaning if customers don't pay off their entire balance within the year, they will get slapped with 12 months’ worth of deferred interest rate of 22.9%. The Consumer Financial Protection Bureau issued a warning to credit card companies last year for misleading promotions like deferred interest rates, but it did not name specific offenders by name.

The best way to approach store-branded cards? If you’re only in it for the discount, buy only what you can afford to pay within the month. That 10% discount today will be useless if you get charged 20% in interest for carrying a balance from month to month.

A better alternative might be free layaway programs, which are offered by some big retailers, including Wal-Mart, Toys ‘R Us, Sears and Kmart. This option lets you pay a little bit toward the cost an item over time. Just be aware of fees. Some stores charge account setup or cancellation fees.

In the end, don't expect sales reps or the companies they work for to warn you of the pitfalls of store credit cards. It’s up to customers to know what’s best for their wallet — and what isn't.

Have a story to share? Email us at yfmoneymailbag@yahoo.com.

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Mandi Woodruff is a reporter for Yahoo Finance and host of Brown Ambition, a new podcast about career and finance. Follow her on Tumblr or Facebook