Private Label Card

A private label card is a payment card, almost always a credit card, that carries the brand of a single retailer and can be used only at that retailer or at a defined group of merchants. It does not bear the logo of a general-purpose card network, and it will not work elsewhere. Department stores, home improvement chains, furniture and electronics sellers, jewellers, fuel companies and online marketplaces offer such cards, commonly known as store cards.

The card is a closed-loop product. In most programmes the retailer does not lend the money itself: a bank or specialist finance company issues the card, owns the balances and carries the credit risk, while the retailer supplies the brand, the customers and the place to use it. Private label cards are distinct from the co-branded card, which carries both a retailer's brand and a network logo and can be used anywhere the network is accepted.

A customer applies at the till, on the retailer's website or in its app, often prompted by a discount on that day's purchase. The issuing bank makes an instant decision using credit underwriting based on a credit bureau check, sets a credit limit and opens a revolving credit account. The customer can usually shop immediately with a temporary number, before any plastic arrives.

Purchases are authorized over the issuer's own connection to the retailer instead of through a general card network, and the bank pays the retailer for the sales and bills the cardholder monthly. Because no outside network or separate acquirer is involved, the transaction is on-us from start to finish, the pattern of a closed-loop card scheme.

For the retailer the attraction is partly cost. A sale on its own card avoids the interchange fee and network charges due on general-purpose cards, although the retailer may pay the bank a fee, particularly for promotional financing. More important is the effect on sales and loyalty: cardholders tend to visit more often and spend more, the card provides a channel for offers and a rewards programme, and purchase data is tied to an identified customer.

The bank earns interest and late fees on balances and bears the losses on accounts that default. The partnership contract usually provides for the retailer to share in the programme's profit above an agreed return, which for large chains can amount to a significant part of their earnings. Contracts run for many years, and when one ends the portfolio of accounts may be sold to a new issuer. The failure or closure of a retailer leaves the bank with balances owed by customers who no longer have a reason to use the card, a known risk of the business.

• Discounts and rewards. A percentage off purchases, points, free delivery, extended return periods or early access to sales.
• Promotional financing. Large purchases such as furniture, appliances or dental work can often be paid over six to twenty-four months with no interest if the balance is cleared in time.
• Easier approval. Limits are lower and acceptance criteria looser than for general-purpose cards, so store cards are often a first credit product and a way to build a credit history.

The costs are correspondingly higher. The annual percentage rate on store cards is typically well above that on general-purpose credit cards. Many promotions use deferred interest: if any part of the promotional balance remains at the end of the period, interest is charged retrospectively on the whole original amount from the purchase date. Consumer agencies have repeatedly warned that customers misunderstand this feature.

In the United States a private label credit card is open-end consumer credit, subject to the Truth in Lending Act and Regulation Z in the same way as any other credit card. The rules cover disclosure of rates and fees, assessment of the applicant's ability to pay, limits on penalty fees, the handling of billing disputes and the allocation of payments above the minimum, including specific provisions for deferred interest balances. Fair lending and credit reporting laws apply to the application and account management. The issuing bank is responsible for compliance, including for the way store staff market the card, which has been the subject of enforcement where customers were signed up without clear consent or were misled about promotional terms.

Because the card does not run over a payment card network, some network-specific rules do not apply, but data security obligations and general consumer protection law do.

Many retailers now offer both versions: a private label card for applicants with thinner credit files and a co-branded network card for stronger ones, with the option to upgrade. Commercial equivalents exist as well, including trade credit cards for building suppliers and the fleet card used for fuel.

The product has faced competition from instalment plans offered at checkout under the buy now, pay later label, which provide interest-free purchase financing without opening a revolving account. Issuers have responded by putting store cards into mobile wallets, offering fixed instalment plans on the card itself, and integrating applications into online checkout. Store cards should not be confused with store credit, a balance a retailer grants a customer, typically for returned goods.