By some measures, credit cards have “never been this expensive,” according to an analysis published this week by the Consumer Financial Protection Bureau (CFPB).
The CFPB states that for cardholders who carry a balance without paying it off in full each month, issuers generally charge interest based on annual percentage rates (APRs). In 2022 alone, major credit card companies charged over $105 billion in interest, the primary cost of credit cards to consumers.
While the effects of increases to the target federal funds rate have received considerable attention, the average APR margin (the difference between the average APR and the prime rate) has reached an all-time high.
In this analysis, the CFPB states that higher APR margin drove about half of the increase in credit card rates over the last decade. In 2023, excess APR margin may have cost the average cardholder over $250. Major credit card companies earned an estimated $25 billion in additional interest revenue by raising APR margin. Increases to the average APR margin — despite lower charge-off rates and a relatively stable share of subprime borrowers — have fueled issuers’ profitability for the past decade.
“Higher APR margins have allowed credit card companies to generate returns that are significantly higher than other bank activities,” it states.
To view the entire post, as well as credit card average APRs, higher APR margin profitability, excess APR margin costs, and credit cards driving financial institution profit, click here.
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