Many credit cards offered by major retailers continue to charge exorbitant annual percentage rates (APRs), despite moves by the Federal Reserve to lower interest rates in the economy.
In a report released Wednesday, the Consumer Financial Protection Bureau found that 19% of retail cards had APRs above 35%, an interest rate that is at or near the legal cap for active-duty service members under the Military Lending Act. In December 2024, new cards offered by the top 100 retailers had an average private label APR of 32.66%.
There is no federal cap on interest rates. And while many states have usury laws, credit card issuers are often domiciled in states with more liberal rules about how much interest they can charge on a credit card.
The findings come as the Federal Reserve is set to lower interest rates for the third time this year as economic growth moderates and the job market cools.
The most direct impact from changes to the central bank's federal funds rate is on the prime rate, which is the rate banks charge on loans to customers with good credit. That rate has declined from 8.5% in September to 7.75% today, and will decline further assuming the Fed announces an interest-rate cut on Wednesday.
Private-label cards tend to charge an APR based on the prime rate, plus a margin they deem necessary to cover their costs and maintain a profit. And some even ignore the prime rate altogether.
“As a result, the many cardholders charged APRs that are not based on the Prime Rate will not benefit from future cuts to the Prime Rate,” the CFPB said.
Earlier this year, the CFPB found these margins to be excessive — though that assertion has been disputed by the American Bankers Association, who say the high margins are necessary given changing market conditions.
The CFPB findings were part of a larger announcement about credit cards that also included a ruling that attempts to devalue credit card rewards programs, alongside the launch of a new tool allowing U.S. consumers to compare credit card offerings in a more transparent manner.
“Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they’ve earned,” said CFPB Director Rohit Chopra in a statement.
“When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them," he said. "The CFPB is taking aim at bait-and-switch tactics and promoting more competition in credit card markets to protect consumers and give people more choice.”
The CFPB remains under threat from members of the incoming Trump administration, including Elon Musk, who recently posted "Delete CFPB" on his X social media platform.
