Dive Brief:
- Americans owe more than ever on their credit cards and were charged record amounts for that debt, according to a report issued Wednesday by the Consumer Financial Protection Bureau. Consumers paid credit card companies a record-high $130 billion in interest and fees last year, with owed balances over $1 trillion.
- Credit card rewards were beneficial only for consumers who paid off their balances at the end of each month, the CFPB said. Customers of major credit card companies who carried debt month to month paid 94% of interest and fees last year, but only earned 27% of rewards, the report said.
- “With credit card debt crossing the trillion dollar mark, we will be working to prevent bait-and-switch tactics when it comes to rewards,” CFPB Director Rohit Chopra said in a Wednesday press release. The CFPB’s report is part of its duty under the Credit Card Accountability Responsibility and Disclosure Act.
Dive Insight:
Consumers paid $14.5 billion in late fees last year, up from $11.3 billion in 2021, returning to pre-pandemic levels.
The CFPB has taken aim at those fees, proposing in February to ban them from being over 25% of the minimum payment, and to cap them at $8. That proposal received about 220 comments from banks, credit unions, consumer finance organizations and individuals.
Credit card company profits exceeded pre-pandemic levels in 2022, the release said. Profits for general-purpose cards reached 5.9% last year, compared to 4.5% in 2019, after peaking at 9.6% in 2021. The companies also charged annual percentage rates that were higher than the cost of offering credit. The average APR margin was 15.4 percentage points above the prime rate.
Wednesday’s CFPB report suggests credit card debt is worse than previously estimated. The New York Federal Reserve Bank reported in August that U.S. cardholders owed $1 trillion in the second quarter of this year.
As debt swelled, cardholders last year paid “significantly more” of their monthly balances, and a larger share of accounts were paid off entirely each month, the CFPB report said.
The credit card market in the U.S. encompasses nearly 4,000 card issuers, four major networks and about 190 million consumers, the report said.
