Despite the Federal Reserve’s efforts to reduce interest rates in the economy, a large number of credit cards provided by large retailers still have outrageous annual percentage rates (APRs).
According to a recent analysis by the Consumer Financial Protection Bureau, 19% of retail cards had annual percentage rates (APRs) higher than 35%, which is at or close to the maximum amount allowed by the Military Lending Act for active-duty military members. The average private label annual percentage rate (APR) for new cards issued by the top 100 shops in December 2024 was 32.66%.
Interest rates are not capped by the federal government. Furthermore, credit card issuers are frequently based in states with more lenient regulations regarding the maximum amount of interest that can be charged on a credit card, even though many states have usury laws.
As the employment market cools and economic growth slows, the Federal Reserve is expected to cut interest rates for the third time this year.
The prime rate, which banks charge on loans to borrowers with strong credit, is most directly impacted by shifts in the federal funds rate set by the central bank. From 8.5% in September to 7.75% today, that rate has decreased and is expected to continue to shrink if the Fed announces an interest-rate cut on Wednesday.
In order to cover their expenses and turn a profit, private-label credit cards typically charge an annual percentage rate (APR) that is based on the prime rate plus a margin. Some people even completely disregard the prime rate.
Therefore, any reductions in the Prime Rate will not help the large number of cardholders who are charged APRs that are not based on the Prime Rate, the CFPB stated.
The American Bankers Association has contested the CFPB’s earlier this year finding that these margins are excessive, arguing that the large margins are required due to shifting market conditions.
The CFPB’s findings were part of a broader credit card announcement that also included a regulation that aims to devalue credit card rewards programs and the introduction of a new tool that makes it easier for American customers to compare credit card offers.
According to a statement by CFPB Director Rohit Chopra, big credit card companies all too frequently use a shell game to trick consumers into purchasing expensive cards, increasing their own profits while depriving them of the benefits they have earned.
Credit card companies should fulfill their promises of cashback benefits and free round-trip travel. To safeguard consumers and increase choice, the CFPB is targeting bait-and-switch methods and encouraging greater competition in credit card markets.
Members of the incoming Trump administration, such as Elon Musk, who recently wrote “Delete CFPB” on his social media site X, continue to threaten the CFPB.
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