Angel Au-Young
speaker
44 appearances
1 recordings
1 series
first heard Oct 2024
last heard Oct 2024
Angel Au-Young’s voice in public audio — every appearance, attributed to the second.
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Earlier this year, Consumer Financial Protection Bureau finalized an $8 late fee cap on credit card fees.
In response to this late fee cap, credit card issuers and banks have said that they've imposed quote unquote mitigating actions to get ahead of the revenue that would be lost
So according to the Federal Reserve, the average credit card rate as of May of this year was around 21.5%, which is around the highest level ever recorded in the Fed data, which goes back to 1994.
And the average balance that people are carrying today is around 6,300, according to data from the TransUnion, which looked at the average balances of cardholders in the second quarter of this year.
When you look at the credit card interest rate, it's comprised of two factors.
The first is the prime rate, and the prime rate is tied to the Fed rate.
So if you looked just at the prime rates of credit cards, they have moved in lockstep with the Fed raising or lowering their interest rates.
But the other factor in a credit card interest rate is the APR margin.
That's the added interest that credit card issuers will charge on top of the prime rate.
This is the part of the credit card interest rate that goes towards covering expenses like preventing fraud, making sure the transactions are running smoothly.
But it's also where these credit card issuers make their profit margins.
And in looking at
how the APR margins have moved in the last couple years, it's not directly tied to the Fed's rate.
So whereas the prime rate is tied to the Fed rate, so that is one potential reason as to why rates haven't fallen in lockstep with the interest rates.
But then when you ask the credit card issuers and the banks,
you know, why the APR margins haven't lowered and locks up with the Fed rates, they will say that they've loosened their underwriting rules, or they have just granted more access to credit to consumers that traditionally don't have access to loans like credit cards.
And in the increasing APR margins cover the risk that's tied to lending to quote unquote, riskier consumers.
So they characterize these consumers as risky because it's the consumers who essentially may be facing personal financial hardships and
for whatever reason, cannot pay a credit card balance in full every month.
As soon as you carry your credit card balance, that increases a consumer's risk profile because then the banks and the credit card issuers are effectively lending money to the consumers who cannot pay the full amount every month.
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