The Inexorable Rise in Credit Card APRs

by on May 07, 2019

Credit card APRs are at an all-time high. The steady rise in rates in recent years can be in part attributed to ongoing Federal Reserve funds rate hikes—the Fed has bumped interest rates nine times in the last five years alone, leading to an increase from .25% to 2.5%. While the Fed is easy to blame for the rising credit card APRs, Exhibit 1 indicates that credit card rates are rising a little faster than Fed rates. More importantly, the rise in APRs is outpacing wage growth. While credit card rates increased 16.88% on average between 2015 and 2019, private sector average hourly earnings increased 11.40%. The exact combination of factors contributing to the rise in APRs is tough to understand, but the ramifications can be significant for a nation long plagued by credit card debt.

Exhibit 1 | APRs increased 16.88% on average between 2015 and 2019

Sources: 2015-2019 Corporate Insight Credit Card Product Matrix

As consumer debt has hit astronomic levels, credit card rates have come under increased scrutiny in the United States. In 2018, credit card interest debt reached $113 billion, and is expected to hit $122 billion in 2019. In a recent Financial Wellness survey done by Corporate Insight, almost half of respondents expressed that debts from credit cards and car loans were a major factor keeping them from saving for retirement. The gap in retirement savings presents a potential financial health crisis for a Boomer generation steadily entering retirement. This threat is only exacerbated by the rising credit card rates, which are imposing an extra burden on many households.

Analyzing firm-specific data from Corporate Insight’s 2015-2019 Credit Card Product Matrices, it’s clear that APRs are increasing across credit card providers. In Q1 2015, the average APR for the top 11 credit card issuers was 14.53%. In Q1 2019, it is 16.98%. The average U.S. household has an estimated $6,929 of credit card debt. Credit card interest payments in 2019 would cost an average of $167.44 more than they would have in 2015. Families that are already struggling to reduce their credit card debt will suffer the compounding effects of ever-increasing debt. Note also that these are average figures—many credit cards charge significantly higher than 16.98%. Out of the 158 credit cards that Corporate Insight tracks in its Credit Card Product Matrix, half had APR rates over 16.98% and some as high as 26.99%. USAA had the lowest APR rates, ranging from 11.17% to 12.33%, while Capital One’s were the highest, varying from 17.89% to 20.10%. Considering these numbers, the increased scrutiny over credit card rates is understandable. Consumers who are carrying balances subject to high APRs are feeding into a snowball effect that could eventually become an unmanageable crisis.

Exhibit 2 | All firms are bumping APRs, with Capital One leading the charge

Source: 2015-2019 Corporate Insight Credit Card Product Matrix