AnnaMaria Andriotis

speaker

201 appearances 3 recordings 1 series first heard Dec 2018 last heard Oct 2019

AnnaMaria Andriotis’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · Interest Rates Are Falling. Why Aren't Credit Card Rates? · 15 Oct 2019 podcast

Because credit card lenders are looking to make a profit and looking to make more of a profit than they were in previous years.

So the one obvious way of how to do that is to increase the interest rates that cardholders are paying on their balances.

Sure.

So the credit card APR, or the annual percentage rate that people pay, it is based on the prime rate, which tends to move in tandem with the Fed's rate increases and rate cuts, plus the margin that lenders set.

So it's prime rate plus margin equals APR.

So what's been happening to the margin is that it's been growing in recent years.

And actually, as of August, that margin was at a record high.

In August, the average margin that lenders tacked on to the interest rates was 11.72 percentage points.

So essentially, what this rising margin is doing is that even as the Fed cuts its rates, right, so that first part of that equation, the prime rate,

would be going down because the lenders are increasing the other part of that equation and raising it, right?

It's offsetting much and sometimes any of the rate cuts that the Fed is making.

No.

So what happens is that the margin gets added to the prime rate.

But for consumers, what this means is that even though the Fed is lowering rates as one portion of the equation that determines your APR is declining.

The other one, set by lenders, is rising.

So the end result, that APR that consumers are paying, could end up being higher than what it actually should be if it was just moving in line with market rates.

Well, so the reason...

That's a good point that you make.

I mean, there's a couple of reasons why the banks are doing this.

So the last four or so years, the credit card industry, it's been all about rewards, right?

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