Consumer Payment Card News

Card APRs Continue Peaking Despite Rate Cuts

Card APRs Third-Quarter

Card APRs for U.S.-issued major credit cards in the third-quarter increased by 64 basis points (bps) between the third-quarter 2018 (3Q/18) and 3Q/19, as the U.S. prime rate decreased by 50 bps. The average credit card rate charged by the nation’s Top 100 banks hit 15.10% in 3Q/19, down 3 bps from the prior quarter, and compared to 14.38% for 3Q/18. Since December 29, 2018 the prime rate has declined from 5.50% to 5.00%, according to figures gathered by CardData.

Third-quarter rates for U.S. bank issued credit cards of 15.13% sets a new 19 year high of compared to 2000 when rates hit 15.71% Additionally, the spread between average credit card rates in 3Q/19 is 985 bps, compared to previous high of 978 in 2010, based on analysis by RAM Research.

Card APRs Analysis

Average credit card rates currently charged by issuers of Visa, Mastercard, Discover, and American Express are now at the highest level since 2001 and the spread between the prime rate and credit card interest rates is the highest point since 2010. Indeed, the average nominal rates charged by the top six U.S. issuers range from 16.53% to 25.78%, notes Robert McKinley, Senior Analyst of CardTrak, CardFlash and CardData.

The current credit card APR charged by the Top 100 banks stands at 15.10%, compared to 14.22% for 2018 and 12.89% for 2017. Eighteen years ago average credit card APRs hit 14.89% and steady declined as the prime rate froze at 4.00% from 2008 to 2014, according to data from the Federal Reserve.

Credit Card Rate Spread

In terms of the spread between average credit card rates and the prime rate, the current spread of 985 bps, compares 922 bps for 2018, and 864 bps for 2017. The highest recorded spread was in 1992 when the average credit APR was 18.22% and the prime rate was 6.00% for a spread of 1222 bps.

The spread is much wider for assessed interest rates charged for card accounts with balances, rising from 16.46% one-year ago to 16.97% for the third-quarter this year.

The year 1992 was a watershed moment in the credit card world when Household Bank and General Motors teamed in September to launch the GM Mastercard, featuring the first variable interest of prime +10.4% or 16.4%. This compared to the fixed 19.80% credit card APRs charged by the top U.S. issuers. The move drove the credit card APR spread down from 1222 bps in 1992 to 727 bps in 1997.

Pivotal Historical Moments

In 1992, more than 90% of all Visa and Mastercards carried fixed interest rates. Today about 95% carry variable interest rates.

The GM Mastercard was similar to move by AT&T and Synovus when the AT&T Universal Bank Visa and Mastercard was launched in September 1990 offering the first no-annual-fee-for-life Visa and Mastercard. The new card product led to an explosion of no annual fee Visa and Mastercard cards across the credit card industry.

In 1990, despite the competition from the no annual Discover card, more than 90% of Visa and Mastercard carried annual fees. Today, the only cards with annual fees offer either an exceptional low APR, a ton of rewards or cash-back.

Big 6 U.S. Visa/Mastercard Issuer APRs

Chase nominal credit card purchase interest rates currently vary from 16.74% to 25.49%, and are prime-based and risk-based. Lower rates are available on some cards requiring an exceptional credit history.

Capital One nominal credit card purchase interest rates currently are offered in three tranches of 17.49%; 22.24%; 24.74% and are prime-based and risk-based. Lower rates are available on some cards requiring an exceptional credit history.

Bank of America nominal credit card purchase interest rates currently vary from 15.74% to 25.74%, and are prime-based and risk-based. Lower rates are available on some cards requiring an exceptional credit history.

Citibank nominal credit card purchase interest rates currently vary from 17.74% to 25.74%, and are prime-based and risk-based. Lower rates are available on some cards requiring an exceptional credit history.

Wells Fargo nominal credit card purchase interest rates currently vary from 15.74% to 27.74%, and are prime-based and risk-based. Lower rates are available on some cards requiring an exceptional credit history.

U.S. Bank nominal credit card purchase interest rates currently vary from 15.74% to 25.24%, and are prime-based and risk-based. Lower rates are available on some cards requiring an exceptional credit history.

Therefore, the average lowest nominal rates charged by the top six credit card issuers is currently 16.53% and the average highest APR is 25.78%

Top 100 U.S. Average Issued Bank Credit Card Rates

1Q/18: 13.63%
2Q/18: 14.14%
3Q/18: 14.38%
4Q/18: 14.73%
1Q/19: 15.09%
2Q/19: 15.13%
3Q/19: 15.03% (August)

U.S. Prime Rate Historical

1Q/18: 4.75% (12/14/17)
2Q/18: 5.00% (06/14/18)
3Q/18: 5.00%
4Q/18: 5.25% (09/27/18)
1Q/19: 5.50% (12/20/18)
2Q/19: 5.50%
3Q/19: 5.25% (08/01/19)
3Q/19: 5.00% (09/19/19)

Top 100 Average Credit Card Rate Spreads

2011: 974 bps
2012: 806 bps
2013: 791 bps
2014: 787 bps
2015: 859 bps
2016: 860 bps
2017: 864 bps
2018: 922 bps
2019: 985 bps (August)

Top 100 U.S. Average Accessed Bank Credit Card Rates

1Q/18: 15.32%
2Q/18: 15.54%
3Q/18: 16.46%
4Q/18: 16.86%
1Q/19: 16.91%
2Q/19: 17.14%
3Q/19: 16.97% (August)

FULL REPORT

Sources: Visa; Mastercard; Chase; Bank of America; Capital One; Citibank; Wells Fargo; U.S. Bank; American Express; Discover; Federal Reserve; RAM Research; CardData; CardTrak; CardFlash; PYRPTS; Bankcenter; CardBuzz; PYVNTS; Ruebud Media; Red3 Media