Credit Card Interest Rates Skyrocket While Credit Card Companies Rake in Profits — Is Tighter Regulation the Answer?

stack of multicolored credit cards on black background.
bernie_photo / Getty Images/iStockphoto

This year’s aggressive interest-rate hikes by the Federal Reserve have led to similar hikes in credit card interest rates, with the average credit card rate in the U.S. hitting 17.99% as of Aug. 17, 2022, according to Creditcards.com. That’s up from about 16% early in the year.

Save More: Back-to-School Tips To Help You Cut Costs
See: This Credit Score Mistake Could Be Costing Millions of Americans

Nationally, the average new-card annual percentage rate in 2022 is already up 1.77 percentage points from a year ago, meaning many new-card holders are paying well above 20% in APR. Those figures are expected to keep climbing as the Fed eyes more rate hikes.

Meanwhile, a rising number of Americans are using their credit cards to pay bills and keep up with the high cost of living, according to a new report from the Consumer Financial Protection Bureau. More than 175 million Americans have at least one credit card, the CFPB said. At any given time, about half of active credit card accounts carry a balance — and the number keeps rising.

“In the coming months, even more people may turn to their credit cards, as increasing prices for necessities like groceries and gas upend their budgets,” the CFPB said in a blog post last week. “Consumer reliance on credit cards as a source of borrowing justifies a closer look at what’s driving interest rates, as credit card market profitability increases.”

Get Credit Card Perks

That closer look includes examining the role credit card companies play. In 2021, large credit card banks reported an annualized return on assets of almost 7%, the highest level since at least 2000, according to the CFPB. Earnings from credit card lending almost always outperform returns on banks’ other revenue streams, while Interest income makes up the majority of revenue on credit cards.

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

Take Our Poll: Do You Tip for Service?

The watchdog agency now plans to study whether the credit card industry — which it says is “dominated by a few key players” — has accelerated profits at the expense of cardholders, or if some other dynamic keeps pushing profits higher.

Not surprisingly, the prospect of further oversight and regulation is already getting pushback from the banking industry. As CNN Business reported on Tuesday, a spokesperson for the American Bankers Association said in statement that the CFPB is “cherry-picking information and painting an incomplete picture of the vibrant and highly competitive” credit card market.

Get Credit Card Perks

“Americans value the convenience, safety and security they get from their credit cards, and they also appreciate the transparency of credit card pricing which is mandated by the government,” the ABA spokesperson said. “As the economy evolves, card issuers will work with their customers to help them navigate the uncertainties ahead, just as they did during the pandemic and prior periods of financial stress.”

More From GOBankingRates

Share This Article:

Get Credit Card Perks

About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
Learn More

Best Bank Accounts for September 2022

Untitled design (1)
Close popup The GBR Closer icon

Sending you timely financial stories that you can bank on.

Sign up for our daily newsletter for the latest financial news and trending topics.

Loading...
Please enter an email.
Please enter a valid email address.
There was an unknown error. Please try again later.

For our full Privacy Policy, click here.