The Consumer Financial Protection Bureau (CFPB) aims to boost competition in the credit card industry to deliver lower rates to consumers.
The agency announced this plan while releasing data showing that consumers with credit cards from the 25 largest issuers faced higher interest rates, regardless of their credit risk.
“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,” CFPB Director Rohit Chopra said in a Friday (Feb. 16) press release.
The CFPB found that the largest credit card issuers charged customers interest rates that were 8 to 10 points higher than those offered by small and medium-sized banks and credit unions, according to the release. This discrepancy in interest rates can result in an additional annual interest burden of $400 to $500 for the average cardholder.
Furthermore, the survey revealed that nine of the largest credit card issuers reported products with maximum purchase annual percentage rates (APR) exceeding 30%, the release said. These high-cost products were often private label or co-branded cards offered through retail partnerships.
Additionally, large issuers were more likely to charge annual fees, with 27% of their credit cards carrying such fees compared to only 9.5% for small firms, per the release. The average annual fee for large issuers was $157, while smaller issuers charged an average of $94.
To increase competition in the credit card market, the CFPB is promoting switching through open banking, according to the press release. The bureau is also scrutinizing bait-and-switch tactics on credit card rewards, closing loopholes that allow credit card issuers to impose junk fees, and promoting credit card comparison shopping.
Looking ahead, the CFPB plans to release data on credit card pricing and availability every six months, the release said. In addition, the bureau is developing a consumer-facing tool that will enable individuals seeking new credit cards to compare terms and interest rates in an unbiased manner.
The CFPB said in March 2023 that it had upgraded its survey of credit card issuers to help Americans find new, better credit cards at a time when interest rates were rising. These upgrades are designed to help consumers compare interest rates and other features when seeking new cards.
The agency is making these changes at a time when both credit card debt and spending are at record levels, according to the Friday press release. The agency reported in October 2023 that as of the end of 2022, consumers’ total outstanding credit card debt topped $1 trillion and their annual spending on credit cards reached $3.2 trillion.