Americans have accumulated near-record levels of credit card debt over the past year as card companies have increased interest rates and fees.
The booming market is helping drive record banking industry profits but could become increasingly costly for consumers who don’t pay off their bill every month or miss a payment, industry experts said.
JPMorgan Chase, the country’s largest bank by assets, and Citigroup reported that credit card sales were up 10% and 5% respectively in the third quarter. Profits at Visa were up 17% in its most recent fiscal year, while Mastercard reported an 11% profit jump in its most recent quarter.
“People like their credit cards. They use their credit cards far more than they use their debit cards,” Jamie Dimon, chief executive of JPMorgan Chase, said in July. “I don’t remember the last time I used my debit card.”
To be sure, despite increasing debt loads, delinquency rates remain relatively low. About 6% of consumers were late on a payment this year compared with 15% in 2009, according to WalletHub. And consumers have yet to balk at the relatively high interest rates, industry experts say.
Credit card debt as a share of disposable income has been flat for the past six years, and many consumers pay off their bill every month, the American Bankers Association said in a November report. “Consumers appear to be well-positioned to meet their financial obligations in the months ahead,” Dan Smith of ABA said in a statement.
The industry has thrived despite the 2010 Credit Card Accountability, Responsibility and Disclosure (CARD) Act, sweeping legislation that, among other things, limited the number of fees consumers could be charged. But card companies are again facing scrutiny from Democrats on Capitol Hill. Sen. Bernie Sanders, I-Vt., a Democratic candidate for president, and Rep. Alexandria Ocasio-Cortez, D-N.Y., introduced legislation this year to cap credit card interest rates at 15%, a steep reduction from existing levels.
The proposal met immediate resistance from the banking industry, which brought in $113 billion in interest and fees from credit cards last year, up 35% since 2012, according to S&P Global Market Intelligence.
A record 182 million Americans have credit cards compared with 147.5 million in 2010, according to TransUnion, and are carrying more than $1 trillion in debt. Consumers will add $80 billion to their tabs this year, according to projections from WalletHub, with the average credit card debt per household hitting $8,701 during the third quarter, up 4% compared with the same period in 2018.
“The credit card business is very profitable, and it sometimes props up parts of their business,” said Ted Rossman, an industry analyst for CreditCards.com.
Interest charges for credit cards have risen despite several Federal Reserve rate cuts. The average interest rate is 17.3%, near a record high, compared with 17.15% a year ago, according to CreditCards.com. The increase has been steeper for consumers with lower credit scores, to 25.37% compared with 24.34% last year. “That is interesting in a year when we had three rate cuts,” said Rossman from CreditCards.com.
Even if the Federal Reserve lowers rates further, credit card companies are unlikely to follow suit, industry experts say. The industry has bolstered its profitability by charging a larger premium between the money they borrow and what they charge consumers, and they aren’t likely to give that up, analysts said.