01—Abstract
Summary
Summary of the 8-K filed March 5, 2024. Cited figures are marked; the original filing is the authoritative source.
On March 5, 2024, Synchrony Financial disclosed under Item 7.01 that the Consumer Financial Protection Bureau issued a final rule amending Regulation Z to limit late fees on credit card accounts.
The rule replaces the existing safe harbor amounts of $30a and $41 with a single $8 amount and eliminates the inflation adjustment. It takes effect 60 days after publication in the Federal Register. Management expects litigation with broad industry support, and it anticipates seeking a preliminary injunction that could delay the effective date.
Management says the outcome of that request and of the litigation is uncertain. Synchrony plans to begin product, policy and pricing changes, to be executed over the next three to four months. These include higher APRs, new fees and other product changes applied through Cardholder Terms.
The company withdrew its January 23, 2024 financial outlook and provided a revised 2024 outlook excluding the rule's impact, with an EPS range of $5.70 to $6.00b excluding the Pets Best gain and the late fee impact. For 2024, the filing estimates roughly $800 million in pre-tax late fee reduction, partially offset by $650 million to $700 million in pre-tax offsets.
This translates to a projected 2024 diluted EPS impact of ($0.15c) to ($0.25), assuming an October 1, 2024 implementation date. The company also expects to provide an update once the litigation's impact is clearer.
02—Key points
Key Highlights
- CFPB final rule amends Regulation Z: late fee safe harbor reduced from $30/$41 to a single $8 amount, with the inflation adjustment eliminated.
- Rule effective 60 days after Federal Register publication; management expects litigation and a possible preliminary injunction that could delay implementation.
- Withdrew the January 23, 2024 financial outlook; revised 2024 EPS range of $5.70 to $6.00 excludes the Pets Best gain and the late fee rule impact.
- Estimated 2024 late fee reduction of approximately $800 million pre-tax, partially offset by $650 million to $700 million in pre-tax offsets.
- Projected 2024 diluted EPS impact of ($0.15) to ($0.25), assuming an October 1, 2024 implementation date.
- Planned mitigation includes higher APRs, new fees and other Cardholder Terms changes, with implementation over the next three to four months and effects building over time.
- Expected slightly lower new accounts, active accounts and purchase volume in 2H'24 from consumer behavior changes.
03—Questions
Frequently Asked Questions
What is the main change in the CFPB late fee rule for Synchrony?
The rule amends Regulation Z to replace the existing late fee safe harbor amounts of $30 and $41 with a single $8 amount and eliminates the inflation adjustment. The filing states that late fee reductions occur upon the rule's effective date, which is 60 days after Federal Register publication.
How much could the rule affect Synchrony's 2024 earnings?
The filing estimates an impact on 2024 diluted EPS of ($0.15) to ($0.25). This assumes an October 1, 2024 implementation date, approximately $800 million in pre-tax late fee reduction, and offsets ranging from about $650 million to $700 million pre-tax.
What is Synchrony's revised 2024 outlook?
The company withdrew its January 23, 2024 financial outlook. The revised outlook shows an EPS range of $5.70 to $6.00, excluding the Pets Best gain and the impact of the late fee rule. The filing states that the Pets Best sale and Ally Lending purchase are expected to close in 1Q'24.
Will the rule take effect as scheduled?
Not certain. Management expects litigation with broad industry support and anticipates a request for a preliminary injunction to delay the effective date. The filing states the outcome of that request and of the litigation is uncertain, and its guidance assumes at least a delay in implementation.
What actions is Synchrony taking in response?
The company is starting product, policy and pricing changes to be executed over the next three to four months. These include increases to APRs, implementation of fees and other product changes through Cardholder Terms, which will continue for inactive accounts and accounts that were initially ineligible. Management states the impact from these terms will occur about 90 days after notification.
04—Continue