Under President Joe Biden, the economy has struggled, affecting the pocketbooks of Americans, with the Consumer Financial Protection Bureau (CFPB) recently saying that credit card companies’ interest on loans had reached a record high, costing customers about $25 billion extra yearly.
Newsmax pointed out that interest on credit card debt comprises borrowing costs, determined by the U.S. Federal Reserve, and an additional rate that the lender charges. These rates, called the annual percentage rate (APR) margin, have raised consumer costs by billions yearly.
The average APR on credit cards nearly doubled to 23% in 2023, increasing from 12.9% in 2013, according to The Hill. The surge comes as U.S. credit card debt reached over $1.1 trillion in 2023.
Bankrate reported that more than 35% of Americans said they have more credit card debt than emergency savings, marking the highest percentage since 2011.
“Since finance charges are typically part of the minimum amount due, this additional interest burden may push consumers into persistent debt, accruing more in interest and fees than they pay towards the principal each year — or even delinquency,” CFPB said.
About half of the average APR increases were exacerbated by credit card issuers that raised their APR margin, according to the CFPB.
“The APR on most credit card accounts can be viewed as being composed of the prime rate and the APR margin,” the report read. “The prime rate (a benchmark most banks use to set rates) represents a good proxy for the banks’ funding costs, which have increased in recent years. But credit card issuers have also sharply increased average APRs beyond changes in the prime rate.”
The Hill noted that interest rates by the U.S. Federal Reserve have also increased the prime rate and, therefore, the overall APR. In 2020, when the agency slashed interest rates to a historic low, the prime rate reached about 3.3%.
Since 2023, the department has raised interest rates to their highest level in 22 years to try and reduce inflation, leading the prime rate to reach 8.5%.
CFPB’s report comes after the banking giant Capital One revealed its plans to merge with credit card giant Discover, leading Democrats to criticize the “dangerous” deal.
“The merger of [Capital One] and [Discover] threatens our financial stability, reduces competition, and would increase fees and credit costs for American families,” Sen. Elizabeth Warren (D-MA) wrote on X, formerly known as Twitter,
The merger of @CapitalOne and @Discover threatens our financial stability, reduces competition, and would increase fees and credit costs for American families.
This Wall street deal is dangerous and will harm working people.
Regulators must block it immediately.
— Elizabeth Warren (@SenWarren) February 20, 2024
