CFPB: Credit Card APRs Almost Doubled in Past Decade
New report may foreshadow upcoming late fee rule
The Consumer Financial Protection Bureau on Thursday took another shot at the credit card industry, saying that the Annual Percentage Rate (APR) on credit cards has almost doubled over the past decade, making the cards extremely expensive for consumers and highly profitable for financial institutions.
“By some measures, credit cards have never been this expensive,” the agency said in a new industry analysis. “Higher APR margins have allowed credit card companies to generate returns that are significantly higher than other bank activities.”
Coupled with a report last week comparing large and small institutions’ credit card interest rates, the CFPB appears to be building a case for its credit card late fee final rule. As originally proposed, the rule had most credit card late fees capped at $8; it is unclear whether the final rule will do the same.
Credit union and banking trade groups objected to the proposed rule, saying that the proposed late fee would be unreasonably low and could limit the availability of credit for individuals with less-than-stellar credit reports.
In the industry analysis issued Thursday, the CFPB said the average APR has increased from 12.9% in late 2013 to 22.8% in 2023. In 2022 alone, major credit card companies charged more than $105 billion in interest. That interest income has fueled issuers’ profitability for the past decade, according to the agency. The CFPB said in the eight years after the Great Recession, the average APR stayed at about 10%. Issuers gradually began increasing APR margins in 2016.
Last week’s report showed that large banks are offering worse credit card terms and interest rates than small banks and credit unions. The agency said in that report that the 25 largest credit card issuers charged interest rates of eight to 10 points higher than small- and medium-sized banks and credit unions.
All of this is fueling speculation that the CFPB may be preparing to make the case that credit card issuers are making a great deal of money even without income from late fees, and that therefore a final rule dramatically reducing late fees is appropriate. Financial services industry expects expect the final rule on credit card late fees to be issued any day.
Responding to the CFPB statistics, a progressive group blasted credit card companies for the increases in APR. “There’s no reason other than greed for credit card company CEOs to price-gouge Americans with interest rates that vastly outpace federal rates,” said Liz Zelnick, director of the Economic Security and Corporate Power Program at Accountable.US. “These companies could still turn a hefty profit without preying upon vulnerable families with usury-style interest rates, but they’d rather make a small group of wealthy investors even richer.”