Bigger is most definitely not better when it comes to credit cards and the banks that provide them, at least not in the eyes of the consumer.
This is because, according to a recent report from the Consumer Financial Protection Bureau, small banks and credit unions frequently provide considerably better credit card conditions and interest rates than the biggest issuers. According to the federal agency, interest rates on products from smaller lenders and credit unions were actually eight to ten percentage points lower than those charged by the top 25 card issuers.
Notably, the CFPB stated that even for customers with excellent credit scores, this might result in additional interest payments of hundreds of dollars annually. The results showed that the median interest rate for consumers with good credit, defined as those with a score between 620 and 719, was 18.15% for small issuer cards and 28.20% for cards from major issuers.
With a $5,000 balance, the difference amounts to an extra $400–$500 in annual interest for the typical cardholder.
Experts said in a statement, “Our analysis found that the largest credit card companies are charging substantially higher interest rates than smaller banks and credit unions.”
The results are based on an analysis of 643 credit cards from 156 issuers, including 84 banks and 72 credit unions, offered in the first half of 2023.
Credit card issuers promote rewards programs and sign-up bonuses, but tend to hide the actual interest rates and penalties, Adam Rust, director of financial services for the Consumer Federation of America, told CBS MoneyWatch. .
“The advice here is to be proactive about calling local banks and credit unions, rather than just responding to an offer that comes in the mail or through your browser, as those are most likely from the large issuers,” he told CBS MoneyWatch.
Industry analyst at consumer financial services provider, said the CFPB’s findings have little relevance for the roughly half of consumers who pay by credit card each month. . “For those people, interest doesn’t matter. Connected to that, big banks do tend to offer better rewards. ”
Rising Financial Stress
In addition to typically charging higher interest rates, large banks are also more likely to charge annual fees, the CFPB found. According to the agency, 27% of credit cards from large issuers charge an annual fee, compared to 9.5% from smaller issuers. Annual fees averaged $157 for the largest issuers, compared to $94 for smaller finance companies.
Interest and fees add to the pile of debt for Americans. According to recent data from the Federal Reserve Bank of New York, credit card balances totaled $1.13 trillion in the fourth quarter of 2023, an increase of $50 billion, or 4.6%, from the previous three months. More consumers are delinquent on their payments, with 5.4% of credit card debt being 90 days or more past due, up from 4% in the final quarter of 2022.
“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” economic research adviser said in a statement. “This signals increased financial stress, especially among younger and lower-income households.”
According to report, nearly half of credit card users carry a balance from one month to the next, an increase of 10 points compared to 2021, and 58% (56 million people) carry at least a balance. He says he has annual debts. Year.
“We know from our data that it`s about half and half — for every one person getting cash back, or airline miles, unfortunately there is someone else paying a high interest rate,” expert said.”A lot of people have credit card debt for very practical reasons. It’s a tough cycle to break.”
The National Credit Card Counseling Foundation offers nonprofit certified counseling at his nfcc.org, and the Federal Trade Commission offers tips for getting out of debt. America Saves, a nonprofit campaign of the Consumer Federation of America, also offers tips and guidance.
