Credit Card Interest Rates Hit 26-Year High

Last week, the average interest on variable-rate credit cards reached 18.03 percent, the highest rate seen since January 1996, according to recent Bankrate data. Since June 25, rates charged to cardholders have increased by 1.5 percentage points. Since March, the Federal Reserve has implemented a series of rate hikes, increasing the prime funds rate to 5.50 percent.

Ted Rossman, senior industry analyst at Bankrate, said that the margin between what card issuers charge and the Fed’s prime rate has improved. “I don’t think all of the recent increases have fully baked in,” he added, according to American Banker.

The Consumer Financial Protection Bureau (CFPB) has kept rising profit margins on credit cards on its radar. In January, it said that it would examine whether the biggest credit card issuers have participated in anti-competitive or unfair practices. It said in a blog post that regulators are “looking to ensure that there is robust and fair competition.”

In August, the CFPB wrote in another blog post that since 2005, the same six credit card issuers have made up more than two-thirds of total balances. Fed data showed that the large credit card banks recorded an annualized return on assets of 6.93 percent in 2021, the highest level since 2006.

“The apparent mismatch between credit card interest rates and the risk and cost of lending may explain part of the markets’ outsized profits,” wrote CFPB financial analyst Margaret Seidel.

The Bureau reported that consumers paid $120 billion in credit card interest and fees from 2018 to 2020, nearly $1,000 a year per household. To fight rising interest rates, the CFPB plans to make comparing, refinancing, and switching credit cards easier for consumers.