Credit card interest rates are consistently higher at large banks than at small banks and credit unions, regardless of the borrower’s credit risk. That’s the headline on a new report from the Consumer Financial Protection Bureau (CFPB), but the details show that the picture isn’t so simple.
The report says that the 25 largest credit card issuers in the U.S. charged customers interest rates 8 to 10 points higher than small- and medium-sized banks and credit unions. The median interest rate for a credit score between 620 and 719 – generally considered good credit – was 28.20% for large issuers and 18.15% for small issuers.
In addition, the CFPB says large issuers are more likely to charge annual fees. Among credit cards from large issuers, 27% carried an annual fee, compared to just 9.5% of small firms. The average annual fee was $157 for the largest issuers, as opposed to $94 for smaller issuers.
The Details Show a Different Picture
But the report fails to address the regulatory concerns than make large banks and credit unions hard to compare. Credit unions, for example, are bound to an 18% rate, and the applicants must be credit union members.
More importantly, digging into the details of who these cards’ customers are can create a different picture.
“The Bank of Missouri issues cards to many credit-challenged consumers far beyond the market of top-tier issuers,” said Brian Riley, Director of Credit Payments & Co-Head of Payments for Javelin Strategy & Research. “Including them in the field creates a different picture. Also, Synchrony and Bread both issue bank cards, but the bulk of their business involves retailer, closed-loop, private-label credit cards.
“The CFPB report mentions Capital One and Citi, but omits the fact that Capital One offers more than 30 different card plans,” Riley added. “CFPB includes Capital One’s Secured card, an excellent product with a progression plan intended for credit-challenged consumers, and the Quicksilver line, which is one of the most exciting card products in the U.S. market. If you look into the details, which are available in Javelin Strategy’s Card Bench, you will find that Citi offers 24 different credit card programs, but its only cards with maximum rates north of 30% are rewards-rich co-branded offers. The card plans the CFPB cites are explicitly co-branded cards that offer rich rewards and cash back for a wide range of consumers. That’s an important part of this story.”