Consumers are paying higher interest rates on their credit card balances than they have in more than a quarter-century, and the Federal Reserve’s rate cuts are no guarantee that they will receive much relief.

The average rate on interest-bearing card accounts topped 17% in May, according to Fed data, the highest in the 25 years that the central bank has been making the calculation. Weekly data based on a Creditcards.com survey of 100 national card issuers found an average rate of 17.8% at the end of July, another multi-decade high.

Card rates rose from long-term lows as the Fed gradually increased its benchmark interest rate between late 2015 and the end of last year. But card issuers pushed up rates faster than the Fed, with the result that the spread between the Fed benchmark and what card borrowers pay, at just under 15%, has been wider only once: in the third quarter of 2009, with rates on the floor.

Analysts point to two groups that have contributed to the aggressive increase in rates by card-issuing banks: lawmakers and customers themselves.


The Credit Card Accountability Responsibility and Disclosure Act of 2009, a U.S. law designed to protect cardholders from exploitation, put limits on banks’ ability to raise interest rates on existing balances. The card issuers “can’t reprice you once they sell you a card — so they have to price [more risks] in,” said John Hecht of Jefferies, a broker.

Another factor, he said, was that customers were not focused on what rates they would pay but instead on what perks, such as cash back and airline miles, their cards brought.

“When you hear [bank] management teams talking about competition in cards, it doesn’t take place in terms of rates but in terms of rewards,” Hecht said.

Card rates are often set by adding a premium to a fluctuating index — most often the prime rate, the lowest rate banks make available to nonbank customers. The prime rate in turn is directly related to the federal funds rate, set by the Federal Reserve.


After the central bank’s decision to cut its benchmark last week, both JPMorgan and Citigroup, the top two U.S. card banks by loan volume, dropped their prime rates by a quarter of 1%. This will flow through to the rates paid by many cardholders, at least initially. But card rates and prime rates do not move in tandem.

Brian Riley of Mercator, a research group, pointed out that since 2014, prime rates had risen by 1.25 percentage points, to an average of 5.5%, while card rates were up 3.95 percentage points, more than three times as much.

Card companies have also found other ways to increase what card customers pay, for example by using annual fees, foreign transaction fees and fees on balance transfers, said Ted Rossman of Creditcards.com.

“I don’t think this [Fed] rate cut is a big gain to consumers with credit card debt — [their] rate is already high and even if it goes down slightly . . . [they] very well might end up paying higher fees in other areas,” Rossman said.


For banks, the wide spread between the cost of money and what they can charge borrowers has made the card business especially profitable relative to other kinds of lending, especially given that default rates remain very low by historical standards. At JPMorgan, revenue from card lending rose 11%, to $16.4 billion, in 2018.

There is about $850 billion in outstanding credit card debt in the U.S., according to the Fed. That is a record dollar amount, although as a proportion of gross domestic product, the figure had declined from 6% to 4% over the last decade.

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