When it comes to credit cards and the banks that issue them, bigger isn’t always better, at least for customers.
That’s because small banks and credit unions typically offer much better credit card terms and interest rates than the largest issuers, the Consumer Financial Protection Bureau says in a new report. I mentioned it in my book. report. In fact, the federal agency said 25 of the largest card issuers were charging customers 8 to 10 percent higher interest rates than small lenders and credit unions were charging on their products.
In particular, even consumers with high credit scores can incur hundreds of dollars in additional interest payments annually, the CFPB said. According to the survey results, the median interest rate for people with good credit (scores between 620 and 719) was 28.20% for cards from large issuers and 18.15% for cards from smaller issuers.
For the average cardholder with a $5,000 balance, that difference equates to $400 to $500 in additional interest per year.
“Our analysis finds that the largest credit card companies charge significantly higher interest rates than smaller banks and credit unions,” CFPB Director Rohit Chopra said in a statement.
The findings are based on an analysis of 643 credit cards from 156 issuers (including 84 banks and 72 credit unions) offered in the first half of 2023.
Credit card issuers tend to promote rewards programs and sign-up bonuses, but ignore actual interest rates and penalties, Adam Rust, director of financial services for the Consumer Federation of America, told CBS Money. told Watch.
“The advice here is to be proactive and call your local bank or credit union, rather than just responding to offers that come to you via email or browser. Offers come from large issuers,” he told CBS MoneyWatch. This is because there is a high possibility that it is an offer.”
Ted Rothman, senior industry analyst at consumer financial services firm Bankrate, said the CFPB’s findings are not very relevant to the roughly half of consumers who make credit card payments each month. “For them, interest is not important. Big banks tend to offer better compensation in that regard.”
Growing financial stress
In addition to generally charging higher interest rates, large banks are also more likely to charge annual fees, according to the CFPB. According to the agency, 27% of credit cards from large issuers had an annual fee, compared to 9.5% from smaller issuers. The largest issuers had an average annual fee of $157, compared to $94 for smaller financial companies.
For Americans, interest and fees are contributing to a growing mountain of debt. According to a recent study, credit card balances in the fourth quarter of 2023 were $1.13 trillion, an increase of $50 billion (4.6%) from the same period last year. data From the Federal Reserve Bank of New York. More consumers are delinquent on their payments, with 5.4% of credit card debt being delinquent for more than 90 days, up from 4% in the final quarter of 2022.
“Credit card and auto loan delinquencies remain above pre-pandemic levels,” Wilbert van der Klaau, economic research advisor at the New York Fed, said in a statement. “This indicates increased financial stress, especially among young people and low-income households.”
almost half Credit card user has a balance According to Bankrate, it increased by 10 percentage points from one month to the next compared to 2021. According to the company, 58% (56 million people) of people who are revolving their balances have been in debt for at least a year.
“Our data shows that the ratio is about 50-50. For every one person who receives cash back or airline miles, unfortunately, the other person is paying higher interest rates. That’s the case,” Rothman said. This is a very real reason why many people have credit card debt. Breaking this cycle is difficult. ”
The National Foundation for Credit Card Counseling provides nonprofit, certified counseling at the following locations: nfcc.orgFederal Trade Commission offers tips for getting out of debt here. America will savea nonprofit campaign by the Consumer Federation of America, also offers tips and guidance.
