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WSJ: Credit-Card Rates Are Soaring

WSJ: Credit-Card Rates Are Soaring
(Robert Goebel/Dreamstime)

By    |   Tuesday, 15 October 2019 11:41 AM

Banks reportedly are charging record-high margins on credit cards as borrowers take on more debt.

To be sure, consumer borrowing increased at a solid pace in August, helped by the biggest jump in auto and student loans in three years, the Associated Press reported.

The jump in credit-card rates might seem odd because the Federal Reserve recently has twice lowered short-term interest rates, The Wall Street Journal reported.

However, banks are raising rates for borrowers to pay for generous card-rewards programs, offering free travel and other perks, which have been eating into lenders’ profitability, the Journal explained.

The average annual percentage rate, or APR, on interest-charging credit cards is about 17%, according to Fed data. That is near its highest in more than two decades, WSJ.com explained.

“Credit cards’ APRs are based on a broader market rate plus a margin set by the lenders, and lenders have been raising those margins. They can charge higher rates to consumers who get new cards, but in some cases they also can raise rates on existing cardholders,” the Journal explained.

Lenders tacked on an average margin of 11.72 percentage points on interest-charging cards in August, up from 10.6 points two years before, the Journal explained. It is the highest margin on record, according to an analysis of Fed data by WalletHub.com, a consumer finance website.

Interest rates on private-label credit cards, which can be used only in certain stores, also are rising. The average APR on these cards reached 27.5% this year, a record, according to CreditCards.com.

In August, total consumer credit rose $17.9 billion after a $23 billion increase in July, the Federal Reserve reported last week.

Consumer borrowing is closely watched for signs it can provide about the strength of consumer spending.

Credit-card debt has surged in recent years. U.S. households with card balances owed an average of $8,602 in the second quarter, up 8% from the same period of 2015 when adjusted for inflation, according to an analysis of Fed data by WalletHub.com.

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Banks reportedly are charging record-high margins on credit cards as borrowers take on more debt.
credit, card, rates, borrow
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2019-41-15
Tuesday, 15 October 2019 11:41 AM
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