Banks Refuse To Reduce Credit Card Charges, Even Though Americans Are Now Over $1 Trillion In Debt
31 Dec 2019
Approx Reading time: 4 minutes
- Credit card debt in America is at a record high, having crossed the $1 trillion mark.
- The interest rate and other fees being charged on credit cards have increased this year.
- Even though the Federal government has imposed cuts on charges and fees three times this year, the resulting rates and fees are still higher compared to 2018.
The debt that American people owe to credit card companies has reached record levels now, thanks to the increase in charges and interest rates on credit cards over the past year.
Naturally, this increase has resulted in higher profitability for the banks and other financial institutions giving out credit cards, as they are earning a higher return. For consumers, the cost has increased significantly due to the compounding nature of interest, with many struggling to make their monthly payments if any at all.
According to JP Morgan Chase, which is the largest bank in the country as far as assets are concerned, and also Citigroup, sales of their credit card products have experienced growth of about 10% (JP Morgan) and 5% (Citigroup) during the July-Sept period of this year. Visa has also experienced growth in profitability of around 17% in its recent financial year, while Mastercard’s recent quarterly figures show an increase of 11% in profitability.
There is no doubt that credit cards are the preferred choice by consumers to make transactions, at least according to JP Morgan’s CEO Jamie Dimon.
And the repayments are still coming on time in the majority of cases. According to reported figures by WalletHub, only 6% of credit card users delayed payment in 2019, while this rate was much higher, at 15%, back in 2009. Also, experts have opined that consumers, too, have not raised an issue with the high rates, and that is why the move is not considered problematic by credit card providers, at all.
According to another report by the American Bankers Association, the trend over the last six years has shown credit card debt to be relatively proportional to disposable income, which explains why most users find it easy to pay off their credit card debt. The report implies a stable borrowing behavior on the part of credit card users.
But still, lawmakers have tried to control credit card charges to protect consumers in the past. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act was passed in 2009 to impose many changes in the credit card business, including a limit on the fees that consumers may be charged. This year, too, credit card companies have come under scrutiny, which has resulted in legislation at the start of 2019 that placed a cap on the interest rates charged on credit cards at 15%.
Naturally, banks have resisted such legislation, especially since their profitability is at stake. Just last year, banks earned an income of $113 billion from interest and other fees charged on credit cards. This figure is up by 35% compared to 2012’s earnings.
More Americans own a credit card than ever before. The estimated number of users currently stands at 182 million, up from 147.5 million just a decade earlier. Collectively, the debt owed by users on their credit cards is over $1 trillion, and $80 billion is expected to be added in the current year, according to WalletHub.
The average interest rate being charged on credit cards is 17.3%, which was 17.15% a year earlier, although consumers with an unfavorable credit score have had to pay rates as high as 25.37%, which was 24.34% the year prior. This might not seem like much, but it is definitely alarming when taken in the context that this year's credit card rates have been cut three times.
Other fees have also increased, such as on cash advance facility or the possibility of charges on transferring debt between two cards. For example, according to CreditCards.com, which monitors 100 popular cards in the US, in 2018 54 of them had a minimum 5% cash advance fee on their credit cards, while this year 64 cards charged this fee.
Missing a payment has also become more expensive, but naturally, these charges can be avoided as long as customers continue to pay their credit card bills on time.