Many credit cards offered by major retailers continue to charge exorbitant annual percentage rates (APRs) despite moves by the Federal Reserve to lower economic interest rates.
In a report released Wednesday, the Consumer Financial Protection Bureau found that 19% of retail cards had an annual interest rate of more than 35%, which is less than the legal limit for active duty military personnel under the Military Loans Act. Interest rates are at or near the ceiling. As of December 2024, the average private label APR for new cards from the top 100 retailers was 32.66%.
There is no federal interest rate cap. Additionally, while many states have usury laws, credit card issuers are often based in states that have more lenient rules regarding the interest they can charge on credit cards.
The findings come as the Federal Reserve plans to cut interest rates for the third time this year as economic growth slows and the job market cools.
The most direct impact of changes to the central bank's federal funds rate is on the prime rate, the interest rate that banks charge on loans to creditworthy customers. The rate is now 7.75%, down from 8.5% in September, and will fall further assuming the Fed announces a rate cut on Wednesday.
Private label cards tend to charge an annual interest rate based on the prime rate, plus any margin they deem necessary to cover costs and remain profitable. And some even ignore the prime rate altogether.
“As a result, many cardholders are charged annual interest rates that are not based on the prime rate and will not benefit from future prime rate reductions,” the CFPB said.
Earlier this year, the CFPB found that these margins were: excessive —This claim has been made for a long time, but The American Bankers Association objects.argues that high profit margins are necessary given changing market conditions.
The CFPB's findings were part of a larger announcement about credit cards that also included: judgment attempts to reduce the value of credit card rewards programs in parallel with the launch of new tools U.S. consumers will be able to compare credit card offerings in a more transparent manner.
CFPB Director Rohit Chopra said in a statement: “Big credit card issuers frequently engage in shell games that increase their own profits and lure people into higher-priced cards while denying consumers the benefits they receive.'' “There is,” he said.
“When credit card issuers promise cash back bonuses or free round-trip flights, they should actually deliver them,” he said. “We are promoting competition in the credit card market to protect them.” Give people more choice. ”
The CFPB remains under threat from members of the incoming Trump administration, including Elon Musk, who recently posted on the X social media platform, “Delete the CFPB.”
