Despite the Federal Reserve’s move to lower interest rates in the economy, many credit cards offered by major retailers continue to charge exorbitant annual percentage rates (APRs).
In a new report, the Consumer Financial Protection Bureau found that 19% of retail cards have APRs higher than 35%, an interest rate that is at or near the legal limit for active duty service members under the Military Lending Act. . In December 2024, the average private label APR for new cards offered by the top 100 retailers was 32.66%.
There is no federal cap on interest rates. And while many states have interest laws, credit card issuers often have more liberal rules in states about how much interest they can charge on a credit card.
The results come as does the Federal Reserve. The decision to reduce the interest rate for the third time With economic growth moderating and the job market cooling this year.
Changes in the central bank’s federal funds rate have the most direct effect on the prime rate, which is the rate banks charge on loans to customers with good credit. The rate has fallen from 8.5% in September to 7.75% today, and will fall further assuming the Fed announces an interest rate cut on Wednesday.
Private label cards charge an APR based on the base rate, plus a margin they deem necessary to cover their costs and maintain profitability. And some even ignore the base rate altogether.
“As a result, many cardholders charged APRs that are not based on the prime rate will not benefit from future prime rate reductions,” the CFPB said.
Earlier this year, the CFPB found this margin More than necessary – Although it has been claimed Disputed by the American Bankers Associationwho say higher margins are necessary given the changing market conditions.
The CFPB’s findings were part of a larger announcement about credit cards that included An order Attempts to devalue credit card rewards programs with the launch of A new device Allowing US consumers to more transparently compare credit card offers.
“Major credit card issuers also often play a shell game to lure people to higher-cost cards, increasing their profits while denying consumers these rewards,” CFPB Director Rohit Chopra said in a statement. do what they have earned.”
“When credit card issuers promise cash-back bonuses or free round-trip airfare, they must actually deliver them. The CFPB is using bait-and-switch strategies to protect consumers and give people more choice and credit cards. Promoting more competition in markets.
The CFPB faces threats from members of the incoming Trump administration, including Elon Musk. who recently posted “delete CFPB” on his X social media platform.