Consumer Payment Card News

Rate Hikes

If the Feds raise short-term interest rates by 25 basis points this week and continue with subsequent hikes, then credit cards interest rates are likely to rise 19 basis points within two months, and perhaps increase by 96 basis points within nine months, based on historical patterns. In April 1994, the prime rate moved to 6.25% after sitting at 6.00% for 21 months. By June credit card APRs increased 20 basis points, and nine months after the rate increases began, credit card interest rates were 106 basis points higher. In April 1997, the prime rate moved to 8.50% after sitting at 8.25% for 14 months. By June credit card APRs increased 18 basis points, and nine months after the rate increases began, credit card interest rates were 87 basis points higher. The current prime rate has been sitting at 4.00% for 11 months. In 1994, less than half of bank credit cards in the USA were variable rates. By 1997, variable rates represented more than 75% of the market. Today, the market is split between variable and fixed rates. More than 95% of current variable rate cards are holding at their floor rate. Therefore, the expected rate hikes will promptly impact issuers’ bottom line, given the typical 45 day pass-through period for cardholders.

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