Large Banks Charging Higher Credit Card Rates than Small Counterparts, Says CFPB

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WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) recently revealed data indicating that large banks offer less favorable credit card terms and higher interest rates than their smaller counterparts, regardless of credit risk. The findings suggest that customers of the 25 largest credit card issuers are paying interest rates that are 8 to 10 points higher than those offered by small- and medium-sized banks and credit unions, potentially costing average cardholders an additional $400 to $500 annually.

These findings were part of the first set of results from the newly updated Terms of Credit Card Plans survey, a tool the CFPB is using to increase competition and transparency in the credit card market.

“Large issuers offered worse rates across credit scores,” the survey found. For example, the median interest rate for people with good credit – defined as a credit score between 620 and 719 – was 28.20% for large issuers, compared to only 18.15% for small issuers.

The survey also highlighted that nine of the largest credit card issuers reported at least one product with an annual percentage rate (APR) exceeding 30%. Many of these high-cost products were private label or co-branded cards offered through retail partnerships.

Additionally, the survey showed that large issuers were more likely to charge annual fees. Among these issuers’ credit cards, 27% carried an annual fee, compared to just 9.5% of small firms. The average annual fee was $157 for the largest issuers, versus $94 for smaller issuers.

CFPB Director Rohit Chopra said, “With over $1 trillion in credit card debt outstanding, the CFPB will be accelerating its efforts to ensure that consumers can access better rates that can save families billions of dollars per year.”

This data underscores the CFPB’s ongoing efforts to enhance competition in the credit card market. The agency is promoting credit card comparison shopping, scrutinizing bait-and-switch tactics on credit card rewards, closing loopholes that allow credit card issuers to extract junk fees, and encouraging switching through open banking.

The CFPB published its biannual consumer credit card market report in October 2023, noting that more than 190 million consumers have at least one credit card. Both credit card debt and spending reached record levels at the end of 2022, with debt surpassing $1 trillion and spending reaching $846 billion.

As part of its commitment to transparency, the CFPB plans to release data on credit card pricing and availability every six months. The next release is scheduled for spring 2024. Furthermore, the CFPB is developing a consumer-facing tool designed to offer an unbiased way for people to compare credit card terms and interest rates.

These findings serve as a crucial reminder for consumers to be vigilant when choosing a credit card, taking into consideration not just the large banks but also smaller institutions that may offer more favorable terms. As the CFPB continues to shed light on these disparities, consumers will be better equipped to make informed decisions, potentially saving billions of dollars annually.

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