Holiday Wishes for Less Credit Card Gouging

By Christine Chen Zinner, Senior Policy Counsel

We are now full-on into the mad rush of the busiest shopping season of the year and retail sales are expected to reach a record breaking $75 billion just from Black Friday through Cyber Monday. But can we really afford all of these purchases? Or are we being lured into an endless credit card debt trap that will take the rest of the year — or longer — to pay off the interest and fees and charges? Because while we shoppers are breaking sales records, the credit card companies are charging the highest rates ever since the Federal Reserve started tracking this data in 1994. 

Not surprisingly, total credit card debt is surging as well, rising to a record $1.17 trillion owed on credit cards. In the third quarter of 2024, outstanding card balances rose $24 billion, 8.1 percent higher than one year ago. 

Pricing stickier than your eggnog

Why are credit card rates so darn expensive? While the credit card industry has blamed high interest rates, the Federal Reserve has cut interest rates, but credit card interest rates remain stubbornly high. This reflects a historical pattern of “sticky pricing,” where the companies swiftly raise credit card rates when interest rates rise but are slow to drop them when the Fed lowers rates. It turns out, the credit card companies have jacked up prices that are disconnected from the actual costs of providing credit card loans. For example, the banks that issued credit cards continued to raise prices (and their profit margins)  from 2016 through 2018, even as the Federal Reserve lowered interest rates to near zero. 

Credit cards are a great example of how a small cabal of companies (the card networks and the banks) can dominate a market and extract value from customers by just jacking up prices (here, interest rates, late fees, and other charges). 

More competitive markets, please

It is a monopoly problem with two major card networks ( Visa and MasterCard) and a handful of big banks that effectively control all credit card lending. Instead of a competitive credit card market where rival card companies and banks offer lower rates to capture customers, the banks are able to harvest windfall profits when rates rise, then gouge customers when they fall. This lack of competition makes credit cards more expensive for everyone, but especially customers that are the most financially vulnerable. 

Standing up to the monopoly requires vigorous antitrust enforcement against the card companies (like the Justice Department’s recent suit against Visa), blocking big bank mergers (like the pending Capital One-Discover merger), and preventing junk fee gouging (like the Consumer Financial Protection Bureau’s effort to lower credit card late fees that the banks sued to block). With the holiday shopping season in full swing, there is still time to give thanks to the CFPB for fighting junk fees by credit card companies. 

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