American cardholders paid a record $130 billion in interest and fees in 2022, according to a new government report.
The study released Tuesday by the Consumer Financial Protection Bureau (CFPB) was part of the government regulator’s biennial report to Congress. The breakdown: Credit card companies charged consumers more than $105 billion in interest and about $25 billion in fees last year. Overall, it was the “highest amount” recorded in the CFPB’s data history.
The CFPB report comes as outstanding credit card debt has surpassed a record $1 trillion – and pressure from the Federal Reserve’s fight against inflation has pushed interest rates further higher.
For many Americans, the combination of rising debt and interest rates has been difficult to cope with.
Read more: Credit card interest and fees rise to $130 billion – but you don’t have to pay them
“Credit card debt is more expensive than in previous years,” CFPB Director Rohit Chopra said in a statement. “It’s clear that Americans need more options to switch their cards to cards with lower rates.”
Change cards? Rohit Chopra, Director of the Consumer Financial Protection Bureau. (Tom Williams, CQ Roll Call via Getty Images)
The final result
As interest rates and fees rose in 2022, more and more Americans found it more difficult to pay off their credit card debt.
According to the report, the average cardholder had a total of $5,288 in credit card debt at the end of 2022, up 24% from the 2021 low and returning to late 2019 levels. Cardholders with a top credit score between 660 and 719 carried the highest debt, with the average balance reaching $9,135 at the end of 2022.
Among major credit card issuers, 82% of total debt was revolving – meaning consumers in 2022 had a balance remaining into the next month. Only 18% of consumers surveyed said they were able to pay off their entire balance by the due date, CFPB noted.
In contrast, in 2020, only 51.3% of consumers carried a balance into the next month, and 48% of respondents said they were able to pay off the balance in full by the due date.
The story goes on
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“The pandemic relief programs in 2020 and 2021 allowed some cardholders to pay off credit card balances, but the number of people with persistent debt could increase if interest rates remain elevated,” the CFPB said in a statement.
And interest rates have risen significantly in 2022 due to the Fed’s actions to curb inflation.
The average APR for personal cards — used for select providers, similar to retail cards — was 27.7% through the end of 2022, up more than 2 percentage points from the previous year, according to the CFPB. Meanwhile, interest rates on general-purpose cards – used on major networks like Visa and Mastercard – rose from 18.8% in mid-2020 to 22.7% in 2022.
Between March and December 2022, the base rate, which most commercial banks use to set cardholders’ APR, had increased by 4 percentage points.
“Overall, the data shows that more cardholders are being charged late fees, falling behind on payments and facing higher costs due to growing debt,” CFPB researchers noted.
More and more borrowers are faced with “permanent debt”.
The CFPB found that a larger share of Americans were delinquent for more than 180 days because they were hit with higher fees and interest rates, and those with the lowest credit scores were temporarily unable to pay anything at all.
Nearly 10% of credit card users were in “permanent debt,” the CFPB said in the news release, meaning they were charged more in interest and fees each year than they paid on their principal.
One of the hurdles for consumers has been higher minimum payments.
The minimum payment for revolving accounts was increased to $102 for general-purpose cards from $95 last year. Meanwhile, people with private label cards had to pay a minimum payment of $69, up from $66 in 2021.
The CFPB found that borrowers with a high subprime credit score (below 580) or a prime credit score (between 660 and 719) are most vulnerable to delinquency and higher minimum payments.
For example, for private label cards, the average minimum payment for consumers with a credit score below 580 was $43 higher than for those with a credit score of 660. People in the Deep Prime Scoring category also paid $54. Dollars more than consumers with credit scores over 720.
CFPB researchers noted it was “a pattern that is becoming increasingly difficult for some consumers to escape.”
Reducing junk fees
To ease the financial burden on consumers, the CFPB also aims to reduce junk fees and promote a more equitable market.
Earlier this year, the government regulator proposed a rule to curb excessive late fees on credit cards, which it said were being “exploited” by companies by increasing fees due to inflation. The measure is part of the CFPB’s campaign to eliminate or reduce junk fees.
Companies currently charge up to $41 for each missed payment. Under the proposed rule, late fees would be reduced to $8 and the automatic annual inflation adjustment would be eliminated. The proposed rule would also prohibit late payment interest in excess of 25% of the consumer’s required payment.
The CFPB also proposed another rule this month that would make it easier for consumers to switch banks, hoping to promote a competitive market and help people transfer their transaction data without hurdles.
“Over a decade ago, Congress banned excessive fees for late credit card payments, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” Chopra said in a statement . “[The] The proposed rule aims to save families billions of dollars and ensure that the credit card market is fair and competitive.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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