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While the APR rose between 2022 and 2024, at the same time the Federal Reserve raised interest rates at the fastest pace in 40 years. Much of this was to counter inflation that raised the cost of nearly every good and service. Fraud and scam attempts also increased dramatically, and consumer risk grew—particularly among subprime and near subprime borrowers—as pandemic stimulus cash was spent down, which led issuers to adjust risk-based pricing. As Calem’s analysis finds, broad economic forces—not opportunism—explain the increase in APRs.
In short, interest rates climbed because the underlying cost and risk of credit did.
To understand this more fully, it’s essential to understand the factors that comprise an APR. As CBA’s recent analysis demonstrates, an APR, like cake— has layers. It’s not a single profit number, but a composite of multiple cost components including:
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Base funding cost: the interest rate environment set by the Fed.
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Credit risk cost: the probability that borrowers will default.
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Operational and compliance costs: necessary infrastructure, customer service, fraud prevention, and regulatory compliance.
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Capital cost: the regulatory requirement to hold capital against unsecured lending.
When the cost of each layer rises, the overall APR rises. This is not corporate greed—it is prudent risk management. Understanding that breakdown matters because efforts to artificially cap or compress rates, however well-intentioned, can have serious consequences, particularly by cutting off access to regulated credit for consumers who are on the margins of credit access.
Setting Aside Cakes, the Proof is in the Pudding: Credit Cards Help, Not Harm, Everyday Americans
A misconception in today’s credit card debate is that cards mainly benefit higher-income Americans, while lower-income consumers get stuck with fees that subsidize everyone else’s rewards—a “reverse Robinhood” storyline that has been used to push for government price caps. But that narrative fundamentally misunderstands, or ignores, how the market actually works.
Credit cards, including retail cards, are often the only safe, well-regulated form of credit available to people with little or no credit scores. Banks are uniquely positioned and willing to serve these customers, doing so in a safe and well-regulated system.
The 2017 CFPB Becoming Credit Visible report underscores that credit cards are often the first step for consumers to access regulated credit. For a recent graduate with no credit history, a single mom rebuilding after a financial setback, or a factory worker without a traditional banking footprint, a credit card is often the only on-ramp to opportunity. Serving deep subprime consumers necessarily involves higher interest rates to account for greater default risk and to meet banks’ safety and soundness requirements. Even so, credit card issuers have actively reduced the share of subprime and deep subprime customers who pay annual fees by more than half over the same period.
CBA consistently demonstrates how flawed the “reverse Robin Hood” theory by credit card critics is including through analysis we released on a Federal Reserve working paper examining rewards cards, noting that the differences in net rewards among consumers is not the result of rewards programs “taking from the poor and giving to the rich,” but instead a result of credit scores and risk-based pricing.
Further, research suggests that cards may actually spread benefits across incomes, while the costs tend to land more on higher-income cardholders.
The Power of Choice and Competition
The fact is that U.S. consumers benefit from a highly-regulated, and highly-competitive credit card marketplace where over 4,000 issuers across four major networks offer a wide range of unique products and fiercely compete for consumers’ business. Card issuers compete on a number of different dimensions, from their ability to underwrite consumers, rewards offered, interest rates, fees, and broader benefits like airline lounges and a host of product innovations.
And the competition doesn’t end when a consumer signs up for a card. Issuers must continually invest in service, technology, rewards and pricing to be “top-of-wallet” for the consumer. The sheer volume of balance transfers—more than $53 billion in 2022 alone—shows how easily consumers can switch providers if they find a better deal. To put this in perspective, that amount equals the total customer base of the seventh-largest credit card issuer—illustrating the significant power consumers have to shop, compare, and switch providers.
A Driver of Economic Resilience and Growth
Credit cards don’t just help consumers manage daily costs; they helped fuel one of the fastest post-recession recoveries in modern history. In that sense, cards aren’t merely a consumer convenience—they’re a key part of America’s economic engine and resilience.
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