Credit card interest rates are at record highs. Cards have ‘never been this expensive,’ CFPB says

Credit card interest rates have ballooned to record highs in recent years — and the growing portion of the formula that generates profit for card issuers is partly to blame, according to a new analysis by the Consumer Financial Protection Bureau.

The average consumer paid a 22.8% interest rate on their credit card balance at the end of 2023, the highest since the Federal Reserve began tracking data in 1994.

Interest charges, expressed as an annual percentage rate, are up about 10 points in the past decade, from 12.9%. Total credit card debt and average balances are also at record highs.

“By some measures, credit cards have never been this expensive,” wrote CFPB’s Dan Martinez, senior credit card program manager, and financial analyst Margaret Seikel.

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Credit card APRs began moving sharply higher in 2022 as the Fed raised its benchmark interest rate to tame inflation. Interest rates on credit cards — and other consumer loans — generally move in tandem with Fed policy, according to a barometer known as the “prime rate.”

However, credit card companies have also simultaneously raised their average “APR margin,” according to the CFPB.

APR margin is the difference between the total APR and the “prime rate.” It’s a proxy for card issuers’ profits commensurate with their lending risk, the CFPB said.

Those margins are at record highs. They averaged 14.3% in 2023, up from 9.6% in 2013, according to the watchdog’s analysis, issued Thursday.

Almost half the increase in total credit card interest rates in the past decade is due to issuers raising their APR margins, the analysis said.

However, the CFPB authors questioned if those higher profits were justified since issuers don’t seem to be…