Big banks charge higher credit card APRs than smaller issuers, CFPB says

Al Drago/Bloomberg

The largest credit card issuers charge significantly higher annual percentage rates than smaller issuers, resulting in some cardholders' paying as much as $400 to $500 a year extra and the big companies' earning billions of dollars in additional interest income, the Consumer Financial Protection Bureau said. 

The CFPB on Friday released a survey of 84 banks and 72 credit unions that found large credit card issuers offered the highest interest rates across all credit scores. The survey comes as the CFPB is expected to finalize a rule soon that would slash credit card late fees to $8, potentially wiping out up to $9 billion a year in profits for banks and credit card issuers. 

The survey results also coincide with the CFPB's narrative under Director Rohit Chopra that the largest banks are charging consumers so-called junk fees primarily to pad their bottom lines. The survey found that small banks and credit unions offer lower interest rates on average across all credit-score tiers than the largest 25 credit card companies.

The median interest rate charged by large credit card companies was 28.2% compared with 18.15% charged by small issuers, to consumers with good credit — typically credit scores between 620 and 719, the CFPB said.

"Our analysis found that the largest credit card companies are charging substantially higher interest rates than smaller banks and credit unions," Chopra said in a press release. "With over $1 trillion in credit card debt outstanding, the CFPB will be accelerating its efforts to ensure that consumers can access better rates that can save families billions of dollars per year."

The CFPB found that the APR spread between the top 25 issuers and the smallest ones was between 8 to 10 percentage points, with only a slight variation based on consumers' credit scores. The survey was based on data collected in the first half of 2023 including data on so-called purchase APRs, which captures the interest rate credit card issuers charge on purchases when a consumer carries a balance. 

The CFPB has said that credit card companies' margins are increasing as they price APRs further above the prime rate, which the bureau has said signals a lack of price competition. Credit card companies are offering more generous rewards and sign-up bonuses to win new accounts, which largely benefits consumers with higher credit scores who pay their balances in full each month. 

The CFPB has long sought to explore ways to promote transparency and comparison shopping on purchase APRs — a major cost of credit cards that is often unknown to consumers prior to card issuance. 

In December the CFPB issued a lengthy report that found credit card companies charged consumers $105 billion in interest and $25 billion in fees in 2022, the highest amounts on record. Credit card debt has surpassed $1 trillion, while spending hit $846 billion in 2022, the bureau found. 

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Lindsey Johnson, president and CEO of the Consumer Bankers Association, issued a strongly worded rebuttal of the CFPB's statistics and statements, homing in on the bureau's assertions that the credit card market is not competitive. 

"The CFPB's own data simply does not support their assertions about competition in the credit card marketplace," said Johnson, noting that nearly 4,000 banks issue more than 640 individual credit card products. "This may be the only time that anyone has pointed to a market with vastly different prices as an indication of competition problems."

CBA, which represents most large credit card companies and banks, took issue with the CFPB's description that the credit card market is highly concentrated and "anti-competitive." She said how interest rates are calculated and whether fees are assessed varies greatly and can depend on product features such as rewards such as cash-back benefits.

"In a world where only one price is offered, consumers lose — even if it's the 'lowest-price' option," she said. "Rather than bolstering this already highly competitive and well-regulated market, the CFPB seems to be driving consumers to a one-size-fits-all world focused on specific criteria that the CFPB chooses, as opposed to the preferences of the people we should all be working to serve." 

The CFPB's research found that the top 30 credit card companies represent about 95% of credit card debt, while the top 10 companies dominate the marketplace. The CFPB also listed 15 issuers—including nine of the largest ones in the country — that reported at least one product with a maximum purchase APR over 30%. Many of the high-cost cards are co-branded cards offered through retail partnerships.

The top issuers include JPMorgan Chase, American Express, Citigroup, Capital One Financial, Bank of America, Discover Financial, U.S. Bancorp, Wells Fargo, Barclays and Synchrony Financial.

A few consumer groups and nonprofits aligned glommed on to the CFPB's report to blast large banks. 

"The CFPB's report is a clear indictment of how big banks, emboldened by unchecked mergers and consolidation, exploit their market dominance to lock consumers in so they can levy exorbitant fees and interest rates," said Morgan Harper, director of policy and advocacy at the American Economic Liberties Project, a progressive nonprofit group. 

The CFPB said it has taken a number of steps to address what it claims are problems in the market including promoting switching through open banking, scrutinizing bait-and-switch tactics on credit card rewards, closing loopholes that allow credit card issuers to extract junk fees, and promoting credit card comparison shopping.

The agency recently updated its credit card data webpage and said it continues to expand its reporting on credit card data.