More Americans face ‘persistent debt’ as interest rates and fees rise: new study

U.S. cardholders paid a record $130 billion in interest and fees in 2022, according to a new government report.

the Stady It was released Tuesday by the Consumer Financial Protection Bureau (CFPB) and was part of the government watchdog’s biennial report to Congress. The Breakdown: Credit card companies charged consumers more than $105 billion in interest and nearly $25 billion in fees last year. Overall, this was the “highest amount” recorded in the history of CFPB data.

The CFPB’s report comes at a time when outstanding credit card debt has surpassed a record $1 trillion — and pressure from the Fed’s fight against inflation continues to push interest rates higher.

For many Americans, the combination of high debt and interest rates has been difficult to manage.

Read more: Credit card interest and fees are rising to $130 billion, but you don’t have to pay them

“Credit card debt is more expensive than in years past,” CFPB Director Rohit Chopra said in a statement. “It’s clear that Americans need more ways to convert cards to cards with lower interest rates.”

Swap cards? Rohit Chopra, Director of the Consumer Financial Protection Bureau. (Tom Williams, CQ-Roll Call via Getty Images)

Bottom line

With interest rates and fees increasing in 2022, more Americans are having trouble paying off their credit card debt.

According to the report, the average cardholder carried $5,288 in total credit card debt at the end of 2022, a 24% increase from 2021 lows and representing a return to late 2019 levels. Cardholders with Major credit scores Between 660 and 719 It carried the highest debt, with balances averaging $9,135 at the end of 2022.

See also  Top 10 Things to Watch in the Stock Market Tuesday from Jim Cramer

Among major credit card issuers, 82% of total debt was revolving — meaning consumers were carrying a balance until the next month in 2022. Only 18% of consumers surveyed said they were able to pay off their balances in full by the due date, the CFPB noted. .

In 2020, by contrast, just… 51.3% of consumers rolled over their balance to the next month, and 48% of respondents said they were able to pay off balances in full by the due date.

Read more: Credit card fees explained: 8 types you should know about

“Pandemic relief programs in 2020 and 2021 enabled some cardholders to pay off credit card balances, but the number of people facing ongoing debt could rise if interest rates remain high,” the CFPB said in a statement.

Interest rates rose quite a bit during 2022, due to the Federal Reserve’s moves to curb inflation.

The average APR on private cards — used for specific vendors, similar to retail cards — reached 27.7% by the end of 2022, an increase of more than 2 percentage points from the previous year, according to the CFPB. Meanwhile, interest rates on general-purpose cards – used across broad networks such as Visa and MasterCard – jumped from 18.8% in mid-2020 to 22.7% in 2022.

Between March and December 2022, the prime interest rate that most commercial banks use to set cardholders’ APR rose by 4 percentage points.

“Overall, the data show that more cardholders are being charged late fees, defaulting on payments, and facing higher costs on mounting debt,” the CFPB researchers noted.

See also  Bed Bath & Beyond exec Gustavo Arnal ID served as a 'Jenga Building' traffic junction in New York City: Source

More borrowers face ‘persistent debt’

The CFPB found that a larger share of Americans slid into more than 180 days of delinquency as they faced higher fees and interest, and those with the lowest credit scores sometimes couldn’t pay anything at all.

Nearly 10% of credit card users found themselves in “persistent debt,” meaning they incurred more interest and fees each year than they paid toward the principal, the CFPB said in the statement.

One hurdle consumers faced was higher minimum payments.

The minimum payment for revolving accounts rose to $102 for general purpose cards, up from $95 the previous year. Meanwhile, people with private-label cards faced a minimum payment of $69, up from $66 in 2021.

The CFPB found that the people most likely to default and face minimum payments are borrowers with high-risk credit scores (less than 580), or those with raw scores (between 660 and 719).

For example, for private label cards, the average minimum payment due for consumers with a credit score below $580 was $43 higher than for those with a credit score of 660. People in the deep key score category also paid $54 $ more than consumers with credit scores above 720

This is “a pattern that may become difficult for some consumers to escape,” CFPB researchers noted.

Reduce unwanted fees

To reduce the financial burden on consumers, the CFPB also aims to reduce unwanted fees and promote a fairer market.

Earlier this year, the government watchdog A a base To rein in excessive credit card late fees, which they say companies “exploited” when they raised fees with inflation. This action is part of the CFPB’s campaign to eliminate or reduce unwanted fees.

See also  Stock futures rose as investors watched midterm results awaiting inflation data

Companies currently charge up to $41 for each missed payment. Under the proposed rule, late fees would be reduced to $8, and the automatic annual inflation adjustment would be eliminated. The proposed rule would also prohibit late fees in excess of 25% of the required payment from a consumer.

The CFPB also proposed another rule this month to allow consumers to change banks more easily, hoping to encourage a competitive market and help people transfer their transaction data without a hitch.

“More than a decade ago, Congress banned excessive credit card late fees, but companies exploited a regulatory loophole that allowed them to evade scrutiny for charging illegal, illegal fees,” Chopra said in a statement. “[The] The proposed rule seeks to save families billions of dollars and ensure that the credit card market is fair and competitive.”

Gabriella He is the personal finance and housing correspondent for Yahoo Finance. Follow her on Twitter @__GabrielaCruz.

Click here for real estate and housing market news, reports and analysis to guide your investment decisions.

Leave a Reply

Your email address will not be published. Required fields are marked *