Credit card issuers' APR margins hit record 14.3% in 2023, CFPB says

Samuel Corum/Bloomberg

Credit card companies earned $25 billion in additional interest last year by raising interest rate margins on revolving balances to the highest levels ever recorded, the Consumer Financial Protection Bureau said Thursday. 

Credit card holders paid an additional $250 each in 2023 in interest due to credit card issuers' increases in the average margin on annual percentage rates, which is what credit card issuers charge above the benchmark prime rate, a proxy for banks' funding costs. Higher APR margins drove about half of the increases in credit card rates over the past 10 years and have generated returns that are significantly higher than other bank activities, the CFPB said. 

APR margins on credit card accounts with revolving balances rose to 14.3% in 2023, the highest point in recent history, up from 9.6% in 2013, the bureau said. Major credit card issuers collected $25 billion in additional interest income in 2023 compared with 2013 as a result, the CFPB said. 

"By some measures, credit cards have never been this expensive," wrote Dan Martinez, the CFPB's credit card program manager, and Margaret Seikel, a CFPB financial analyst, in a blog post. "Increases to the average APR margin — despite lower charge-off rates and a relatively stable share of subprime borrowers  — have fueled issuers' profitability for the past decade." 

The latest analysis of charges on credit cards comes as the CFPB is on the verge of issuing a final rule that would cut credit card late fees to just $8, potentially wiping out $9 billion a year in fees. Last week the bureau issued a separate report that found cardholders pay up to $500 a year extra due to higher APRs. The credit card industry could draw even more scrutiny from regulators following Capital One Financial's plan to buy Discover Financial for $35.3 billion.

The focus on APR margins is new given that the charges typically are not apparent to consumers since APR margins are embedded in overall interest charges. Consumers have focused far more on increases in the prime interest rate that have been particularly sharp, jumping to 8.5% in 2023 from 3.3% in 2021.

The CFPB said that over the last 10 years, the average APR on credit cards has nearly doubled to 22.8% in 2023 from 12.9% in 2013, the highest level recorded since the Federal Reserve began collecting the data in 1994. In 2022 alone, major credit card companies charged over $105 billion in interest, the primary cost of credit cards to consumers. 

The CFPB also said in the blog that its research found "high levels of concentration in the consumer credit card market," including evidence of practices that inhibit consumers' ability to find alternatives to expensive credit card products.

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Lindsey Johnson, president and CEO of the Consumer Bankers Association, pushed back against the CFPB's assertion that the credit card industry is not competitive. 

"The CFPB continues to extend beyond its consumer protection authority to pose questions about setting pricing and profits. At best, those are questions about politics — not bank policy," Johnson said. "Further, the CFPB continues to double down on its false narrative about the state of competition in the credit card market. CFPB data shows the market share of the top 10 issuers continues to decline. But more importantly, try naming any other market that has 10 major participants: 10 auto manufacturers; 10 cellphone manufacturers; 10 internet service providers; 10 pizza delivery chains — much less 4,000 options that consumers can obtain by visiting a website on their smartphones."

The excess APR margin cost the average consumer with $5,300 in credit card debt more than $250 last year, the bureau said. The CFPB said the increase in APR margins occurred across all credit tiers with consumers, with the highest credit scores incurring the highest costs. 

The APR margin stayed at around 10% after passage in 2009 of the Credit Card Accountability Responsibility and Disclosure Act, known as the CARD Act. But starting in 2016, issuers gradually began increasing APR margins; the trend accelerated in 2018 through the pandemic. 

The bureau also found that more than half of all credit card issuers sent direct mail offers to cardholders in the third quarter of 2023 that had higher APR margins compared with offers a year earlier on the same product, according to data from Competiscan, a Chicago marketing research firm. 

The CFPB said the return on assets on general purpose credit cards was far greater than the returns banks receive on other lines of business. The ROA on cards was 5.9% in 2022, up from 4.5% in 2019, the bureau said.