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Lana Linge has $42,000 in credit-card debt, but it's not the giant tab that has her most frustrated.The 29-year-old says she takes full responsibility for her debt. After getting her first credit card in her early 20s, Linge accumulated small amounts of debt but was always able to pay it off. That changed in 2020: Linge struggled with managing her spending on necessities and other items, like clothes, while in isolation, causing her bills to grow. Things got worse after she lost her job this past October, and she eventually depleted her savings to keep up with the payments on her card."I know for a lot of people, they're in debt because of these freak things that are outside of their control," Linge tells me. "The reason that I'm in debt primarily is from overspending, and I don't try and negate that in any way."Overwhelmed, Linge is going through the painful bankruptcy process to discharge the debt. Looking back, she regrets not paying more attention to the details of her card's interest rate. Wooed by the rewards and perks the companies were offering, Linge signed up for a card with an interest rate she says ballooned to over 20%. The growing interest payments meant that even as she worked to get her spending under control, the bills kept growing.Linge's experience may be on the extreme end of America's personal finance journeys, but she isn't alone in her interest-rate woes. Consumers are always looking for deals, and it's easy to be swayed by credit-card companies offering glitzy rewards and points. As Adam Rust, the director of financial services at the Consumer Federation of America, told me, issuers are "putting the sizzle before the steak." But many of these cards come with high rates and hidden fees, and by the time consumers realize just what they signed up for, credit-card companies have raked in the profits."Credit-card companies can get away with charging high rates of interest because consumers aren't necessarily paying attention and marketing doesn't focus on that," he said.The average credit-card interest rate is now just over 21%, up from about 15% a decade ago. More importantly, the gap between the interest rate that credit-card companies pay banks that oversee their business and the one they charge you is the widest it has been in nearly 30 years. Even with existing regulations and the recent interest-rate cuts from the Federal Reserve, credit-card companies have the power to exploit consumers, and people with growing debt piles have few avenues for relief. Additionally, as credit-card companies continue to charge high interest rates, more cardholders in debt become delinquent — and that could push the US economy closer to recession."What we're seeing from the data shows a rapidly deteriorating financial landscape for Americans," Bruce McClary, a senior vice president at the National Foundation for Credit Counseling, tells me, "with a lot of people teetering on the brink of severe financial crisis."<h2 id="ddbac9bc-8e83-4317-902e-7a4e1408e665">The squeeze is on</h2>Americans have a lot of debt piled up on their little pieces of plastic. The Federal Reserve Bank of New York said in August that Americans owed a record $1.14 trillion on their credit cards in the second quarter and that balances increased by $27 billion from the same period a year ago, a 5.8% jump. TransUnion says the average credit-card balance per debtor stands at $6,329, up by 4.8% from a year ago. Most worryingly, according to the New York Fed, the percentage of people who had fallen more than 90 days behind on their payments climbed to 6.4% by the end of 2023, up from 4% at the end of 2022. Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, described those rising delinquencies as "uncomfortably high" and a "warning sign" for the economy.This may be worrying news for average households and the US economy, but it is wonderful news for the credit-card companies. Credit-card issuers make money in a few ways, but one of the most important is interest payments. When a customer doesn't pay off their full balance each month, they pay interest that the credit-card company collects, so increasing interest rates is an easy way to bring in more profit. To better understand the strength of the credit-card industry, look at the split between the federal funds rate — the interest rate at which banks make very short-term loans to each other, which is also used as the benchmark for almost every other type of loan — and the average credit-card interest rate. Data from the St. Louis Federal Reserve indicates the difference between the rates is at a nearly three-decade high, suggesting credit-card companies feel free to charge high interest rates regardless of what the Federal Reserve does with the federal funds rate."We should never lose sight of just how profitable credit cards are," Rust says. "You've got interest, you've got interchange, you've got late fees; credit-card companies are making so much money."The Consumer Financial Protection Bureau estimated in February that major credit-card companies earned about $25 billion in additional interest revenue in 2023 by raising their annual-percentage-rate margins, or the difference between the APR and the interest rate set by banks, known as the prime rate. It also found that major issuers raised the average margin by 4.3 percentage points over the past decade, to an all-time high. Using data on how Americans deploy their cards to paint a representative picture, the CFPB estimated that the margin increase cost the average consumer with a balance of $5,300 more than $250 in 2023. On top of that, the bureau's 2023 report to Congress on the credit-card market said companies charged consumers over $105 billion in interest in 2022, helping boost the profit margin for these companies to 5.9% from 4.5% in 2019.These staggering numbers are made possible by the tactics that credit-card companies use to lure in new customers. Antoinette Schoar, an economist at MIT who coauthored a paper examining credit-card companies' use of behavioral biases to acquire customers, says companies use data to determine a prospective customer's education and income levels and will tend to offer products with hidden fees and high rates to people with lower educational attainment and income. For example, a company might advertise a 0% APR, but the consumer might not realize that that rate can't last forever, leading them to take on balances higher than they can afford to pay off. She says that while the tactics companies use to appeal to certain consumers can lead to high balances and credit-card debt, the companies aren't the only ones to blame — government regulations to prevent this kind of misleading marketing by credit-card companies could force the companies to compete by offering customers a better deal."We need better regulation so that the card companies are competing on the right dimensions and not on increasing convolution or increasing confusion to their customers," Schoar says.<h2 id="a19bffcc-ffc0-46bd-9211-4a8e68d3409d">'The highest credit-card rates we've ever seen'</h2>Until 1978, most states had laws capping interest rates for credit cards and consumer products. But a Supreme Court decision that year allowed banks to charge whatever interest rate they wanted if they were headquartered in a state without a usury law. This inspired a race to the bottom, with states like South Dakota and Delaware doing away with their laws in order to attract more business from banks. The industry ended up with, as David Silberman, a senior fellow for the Center for Responsible Lending, put it, virtually "no legal constraints on the interest rate they charge." Lawmakers have tried to rein in the industry — for instance, the CARD Act, enacted in 2009, required card issuers to notify consumers of interest-rate increases at least 45 days in advance and put restrictions on things like late fees and withdrawal fees. The legislation, however, didn't cap interest rates or rate increases. Lowering the current high interest rates, and the profits that come with them, has become a priority across the aisle. GOP Sen. Josh Hawley introduced a bill in 2023 that would cap interest rates at 18% and impose penalties on companies that violate the cap. "Americans are being crushed under the weight of record credit card debt—and the biggest banks are just getting richer," Hawley said in a statement, adding that "capping the maximum credit card interest rate is fair, common-sense, and gives the working class a chance." Democratic Sen. Elizabeth Warren brought up the issue during a Senate hearing in May, saying credit-card companies had "grown their profits through interest and fees."The Federal Reserve cut its benchmark interest rate in September after holding it steady for over a year, but credit-card holders with high interest rates won't feel any relief off the bat. Michele Raneri, a vice president and head of US research and consulting at TransUnion, told me that's because consumers have to pay off their balances at the interest rate in place when they accumulated the debt, so the lower rate wouldn't apply."It'll take a while for the consumer to realize the benefit of it," Ranieri says.The high inflation of the past few years has also made it easier for consumers to fall into credit-card debt. Ted Rossman, a senior industry analyst at Bankrate, described the feedback loop of high prices and high interest rates as "a tough cycle to break." Credit-card companies know what they need to do to maximize profit: If they offer rewards and bonuses up front, they can snag new customers before they realize the high rates they're signing up for. Profits keep rolling in for issuers, while consumers fall further behind.<a target="_blank" rel="" href="https://www.businessinsider.com/author/ayelet-sheffey">Ayelet Sheffey</a> is a senior economic policy reporter on Business Insider's economy team.

Credit card companies are ripping you off like never before

<ul class="summary-list"><li>Bilt Rewards, a Wells Fargo co-branded credit card, allows people to earn rewards by paying rent.</li><li>Bilt's core demographic are high-earning young professionals.</li></ul>Wells Fargo may have underestimated just how savvy young professionals could be with a credit card that rewards renters.In 2022, <a target="_blank" href="https://www.businessinsider.com/personal-finance/wells-fargo-review">Wells Fargo</a>, the San Francisco-based bank, partnered with Bilt Technologies, a fintech startup, to offer a rewards program that incentivizes customers to pay rent with a credit card.For many young renters, the allure was clear: <a target="_blank" href="https://www.businessinsider.com/personal-finance/bilt-mastercard-card-review">Bilt</a> offered a <a target="_blank" href="https://www.businessinsider.com/personal-finance/best-no-fee-credit-card">zero-annual-fee card</a> that allowed its users to earn a point for every dollar spent on rent without incurring transaction fees. The only requirement was that customers make five transactions each statement period to earn the points.Customers could also receive points for travel and dining. Those points could then be used for purchases with any of Bilt's partners, such as <a target="_blank" href="https://www.businessinsider.com/bilt-adds-alaska-airlines-transfer-partner-loses-american-airlines-2024-3">Alaska Airlines</a>, Virgin Atlantic, Hyatt, and Soul Cycle.According to <a target="_blank" href="https://www.wsj.com/finance/banking/wells-fargo-credit-card-rent-rewards-8e380852">The Wall Street Journal</a>, Bilt opened more than one million accounts within the first 18 months.But the return for the bank has yet to materialize.<h2 id="41a0e031-bf66-4b05-bc06-db1e4feed271">A 'generation of young, affluent new customers'</h2>Bilt's demographic is decidedly different from the <a target="_blank" href="https://www.businessinsider.com/personal-finance/average-american-net-worth">average American</a> — who has a median salary of just less than $60,000, with 49% of them holding onto a credit card balance month-to-month.But a report on Bilt prepared by investment banking firm Financial Technology Partners said the company was reaching out to a "generation of young, affluent new customers."In a February interview with The Wise Marketer, Dave Canty, Bilt's head of loyalty and partnerships, said the company's core demographics are between 24 and 34, with a median age of about 29."The average income," he said in the interview, "is about $147,000, so these are <a target="_blank" href="https://www.businessinsider.com/meet-typical-dink-double-income-no-kid-net-worth-retirement-2023-11">high-achieving young professionals</a>."Bilt CEO and founder Ankur Jain said on X that his company was attracting "highly valuable customers" for Wells Fargo at low costs. The average customer is 31 years old and has a 760 FICO score, he said.Kevin and Amanda Smidt, a Miami-based couple, told Business Insider they've been Bilt cardmembers for about a year after they heard about the program on a financial podcast."I've never heard of it, and I was like, 'Wow, that's so smart,' because — especially if you live in a major city like New York or Miami — you're spending a lot of money on rent," Amanda, a 32-year-old business owner and registered nurse anesthetist, said. "I was like, 'This makes so much sense because I have this huge payment every month, but now I'll get points.'"The two described themselves as financially responsible, telling BI they never carry a balance on their multiple personal credit cards, including Bilt."I heard about it on a financial podcast about investing. I'm a responsible person who invests, you know what I mean?" Amanda said.Kevin, who is 33 and working on his fellowship as an orthopedic surgeon, told BI that the card has been fruitful.The couple said they racked up 56,000 points in about six months and transferred them through one of Bilt's programs to turn their earnings into 126,000 points with <a target="_blank" href="https://www.businessinsider.com/virgin-atlantic-business-class-flight-experience-photos-worth-it-2023-9">Virgin Atlantic</a>. Kevin said they used the reward to pay for three flights, two in business class and one on Virgin's new plane.The husband told BI that he could see the card being beneficial for general use, given the rewards a customer could gain from travel and dining. But for the Smidts, most of the other purchases they made with Bilt were to meet the minimum five-transaction requirement."A lot of the times, that's like a latte," Amanda said. "I just do small purchases to be able to get the points from the rent."Kevin said he hopes Wells Fargo doesn't get rid of Bilt, but Amanda chimed in: "Well, actually, we just bought a house.""Oh yeah," Kevin added, "so we won't be able to use it anymore."<h2 id="52322de8-1296-4a1c-9556-5d6acb37ec6d">A costly program</h2>The Journal reported on Sunday that Wells Fargo was losing up to $10 million monthly to sustain the Bilt program, citing anonymous current and former employees.According to the report, part of the problem is that Wells Fargo may have miscalculated how Bilt customers would use the card.The Journal reported that only 15% to 25% of the dollars people spent on the card were carried over month-to-month, which is crucial for Wells Fargo to generate <a target="_blank" href="https://www.businessinsider.com/credit-card-interest-rates-late-fees-are-rising-recession-2023-11">interest-fee revenue</a>. The bank projected that the carry-over would be between half and three-quarters of the dollars spent.Wells Fargo also anticipated that 65% of the credit card purchase volume would be for expenses other than rent. Instead, <a target="_blank" href="https://www.businessinsider.com/12-million-americans-spend-over-half-paycheck-rent-harvard-study-2024-1">according to The Journal</a>, most purchases are for rent payments despite Bilt's requirement for five transactions per statement to score points.Wells Fargo and Bilt declined to comment on the reported numbers. A Bilt spokesperson told Business Insider that Wells Fargo does not make the numbers publicly available.In an email, a Wells Fargo spokesperson told Business Insider that co-branded credit cards are "one modest piece of the company's overall credit card business strategy, and the BILT credit card is one component of that.""As with all new card launches, it takes <a target="_blank" href="https://www.businessinsider.com/chase-sapphire-reserve-is-jpmorgans-gateway-drug-2018-2">multiple years for the initial launch to pay off</a> and while we are in the early stages of our partnership, we look forward to continuing to work together to deliver a great value for our customers and make sure it's a win for both BILT and Wells Fargo," the spokesperson said.According to The Journal, the losses have pushed Wells Fargo to rethink its partnership with Bilt, and the bank won't renew its contract, which is set to expire in 2029.The Wells Fargo spokesperson said that "there has been no conversation among decision-makers to exit the BILT agreement. To suggest otherwise is false."A Bilt spokesperson said the Journal's story is an "inaccurate representation of our strategic partnership with Wells Fargo."On X, Bilt CEO Jain did not address the reported losses but repeated Wells Fargo's statement denying the bank's plan to end the partnership once the contract expires.

Wells Fargo may have underestimated just how savvy millennial credit card holders can be

<ul class="summary-list"><li>The Credit Card Competition Act would lower credit card swipe fees. </li><li>Major airlines have said that the bill could reduce or completely end travel reward programs. </li></ul>When Jess Bohorquez stayed in a luxury hotel with a view of the Sydney Opera House, she didn't pay a cent.The influencer and creator of "Points By J," a platform that teaches people tricks for low-cost travel, said she uses <a target="_blank" href="https://www.businessinsider.com/credit-card-competition-act-airlines-flyer-miles-dick-durbin-2023-10">credit card points</a> to upgrade her vacations and teaches her audience of over 180,000 Instagram followers to do the same. Since she started accumulating travel points a few years ago, Bohorquez told Business Insider she's gotten discounted flight upgrades, <a target="_blank" href="https://www.businessinsider.com/personal-finance/how-to-book-free-travel-cheap-deals-credit-card-rewards">free hotel stays</a>, and trip insurance through her Chase credit card. She even has access to premium lounges at most airports. "It gets you hooked once you have that first successful points deduction for free travel," said Bohorquez, adding that it's easy to get perks if you know the rules of your credit card. "It's such an exciting feeling."However, those perks could be in danger of disappearing. The US credit card market <a target="_blank" href="https://www.businessinsider.com/visa-mastercard-merchants-agreement-impacts-credit-cards-reward-programs-2024-3">is at a crossroads</a>: Politicians and companies are struggling to compromise on how much card swipe fees should cost, who should get the money, and how all of it will impact consumers.More than eight in 10 Americans use a credit card to make payments, get cash back, and build credit, <a target="_blank" href="https://www.federalreserve.gov/publications/2023-economic-well-being-of-us-households-in-2022-banking-credit.htm">according to The Federal Reserve</a>. About <a target="_blank" href="https://www.nerdwallet.com/article/travel/how-the-41-of-americans-with-a-travel-credit-card-can-boost-rewards">40% of those people</a> have a card that is co-branded with a major airline.Some lawmakers hope to bring more competition to the market, in hopes of limiting the power of major credit card companies and lowering fees. But airlines and travelers worry it could mean the <a target="_blank" href="https://www.businessinsider.com/credit-cards-congress-competition-act-rewards-wipe-out-southwest-2023-10#:~:text=The%20Credit%20Card%20Competition%20Act%2C%20introduced%20by%20Sen.,Mastercard%20in%20credit%20card%20transactions.">end of rewards programs</a>.<h2>Major airlines' bottom line depends on credit card companies</h2>The <a target="_blank" rel="" href="https://www.congress.gov/118/bills/s1838/BILLS-118s1838is.xml">Credit Card Competition Act</a>, which was introduced to Congress in June 2023 would require major banks to use at least one credit card payment network that isn't <a target="_blank" href="https://www.businessinsider.com/visa-mastercard-lawsuit-settlement-credit-card-fees-checkout-2024-3">Mastercard or Visa</a> — companies that control more than 80% of US credit card transactions — to introduce more competition into the credit card market.Visa and Mastercard currently charge businesses about a 3% transaction fee when a customer uses their credit card. The more people that use a credit card, the more revenue banks and card companies make.That's where airlines come in.<a target="_blank" href="https://www.theatlantic.com/ideas/archive/2023/09/airlines-banks-mileage-programs/675374/">Airlines make money</a> off selling tickets and offering in-flight purchases. But <a target="_blank" href="https://www.businessinsider.com/personal-finance/best-airline-credit-cards">co-branded credit cards</a> like Chase Sapphire Preferred, Delta SkyMiles, and the United Explorer Card are profit centers for banks and airlines.The airlines sell banks "points." Credit card holders are then awarded those points for spending money with the co-branded card. Banks and credit card companies make money off of the swipe fees, and airlines only have to pay for the points if they are actually redeemed by travelers. It also makes travelers more likely to choose their specific airline whenever they fly.<a target="_blank" href="https://www.businessinsider.com/dick-durbin-joe-biden-think-twice-trump-debate-2024-1">Sen. Dick Durbin</a>, a Democrat from Illinois, is the lead sponsor of the Credit Card Competition Act. In a statement to Business Insider, he said the bill would introduce necessary competition into the credit card market.Durbin worries that major airlines are becoming like "credit card companies that fly planes.""(Airlines) want to protect the billions of dollars in windfall profits they collect through sweetheart deals they have negotiated with the biggest Wall Street banks at the expense of consumers and local businesses," he wrote.Durbin said his bill would not end travel rewards.<h2>Credit card rewards incentivize travelers</h2>Businesses typically make up for these credit card swipe fees by <a target="_blank" href="https://www.businessinsider.com/personal-finance/visa-mastercard-swipe-fees-premium-credit-cards-2024-3">raising prices for customers</a>. In theory, increasing competition and lowering swipe fees would translate into more affordable consumer prices.This could mean cheaper — or at least more stable — prices for buyers, <a target="_blank" href="https://www.nerdwallet.com/article/credit-cards/how-the-visa-mastercard-swipe-fee-settlement-affects-cardholders#:~:text=It%20could%20lower%20costs%20for,reductions%20end%20after%20five%20years.&amp;text=Sara%20Rathner%20is%20a%20NerdWallet%20travel%20and%20credit%20cards%20expert.">per NerdWallet</a>.Bohorquez, however, said increased credit card competition is unlikely to lower prices in practice. Instead, she said business airlines and credit companies will be less incentivized to offer loyalty perks like frequent-flyer miles and fraud protections.Major airlines <a target="_blank" href="https://www.businessinsider.com/congress-billcredit-card-fees-kill-flier-miles-united-scott-kirby-2023-10">have already said</a> the Credit Card Competition Act could end these reward programs. Southwest Airlines said in a statement to BI that it "strongly opposes" the bill."This legislation is bad policy and would undermine, if not completely end, credit card rewards programs that millions of Americans rely on for their vacations or personal travel needs," Southwest wrote.United Airlines referred BI to Airlines for America, a lobbying group that represents the US airline industry. Delta and American Airlines did not respond to BI by the time of publication.Airlines for America said <a target="_blank" href="https://www.airlines.org/wp-content/uploads/2023/11/Durbin-Marshall-Letter-FINAL-.pdf">in a press release</a> from July that airlines believe credit card competition would harm their "ability to reward our most enthusiastic customers' loyalty and putting the viability of these programs at risk."Still, it's unclear whether the Competition Act will become law. The bill was referred to the Committee on Banking, Housing, and Urban Affairs in July, but hasn't yet been passed by the House or Senate.Until more movement on the bill occurs, Bohorquez plans to make the most of her rewards."I'm not terribly worried about our points going anywhere anytime soon," she said. "I hope that people continue to earn and enjoy their credit card points and take a lot of free trips."Do you use your credit card for travel rewards? Have you saved money on a vacation by using points? Reach out to this reporter at <a target="_blank" href="mailto:allisonkelly@insider.com">allisonkelly@insider.com</a>.<h2></h2>

Here's what the Credit Card Competition Act could do to your airline miles and travel rewards

Southwest Rapid Rewards Plus Credit Card Review 2023

Good news! Some of those annoying fees on your credit card may soon be getting smaller. Bad news! Banks and credit-card companies are almost certainly trying to figure out where else they squeeze money out of you.The Consumer Financial Protection Bureau announced last month that it had finalized a rule <a target="_blank" href="https://www.businessinsider.com/lower-credit-card-late-fees-limits-savings-us-economy-impact-2024-3">capping credit-card late fees at $8</a> for the first violation, cutting them down from the typical $32. Later that month, Mastercard and Visa <a target="_blank" href="https://www.businessinsider.com/personal-finance/visa-mastercard-swipe-fees-premium-credit-cards-2024-3">reached a $30 billion settlement</a> with US merchants agreeing to cap credit-card interchange fees — fees charged to retailers every time you swipe your card at their stores — for a handful of years.Much of the industry's reaction to the late-fees limit has been of the sky-is-falling variety, with the Bank Policy Institute, an advocacy group, declaring that such charges are "essential to efficient functioning of the market." The response to the interchange-fee settlement has been a bit more muted: The Electronic Payments Coalition, which represents Visa, Mastercard, and other credit-card companies, said it was OK with the swipe-fees cap. This sanguine approach, however, is likely in no small part because the agreement is much less aggressive than <a target="_blank" href="https://www.businessinsider.com/credit-cards-congress-competition-act-rewards-wipe-out-southwest-2023-10">legislation floating around in Congress</a>. Taken together, it's clear that many companies in the credit-card business would rather not be dealing with this situation.For consumers, the changes could be a decent deal. By the CFPB's calculation, late fees cost American families $14 billion a year, and it says the rule will save people some $10 billion annually. The swipe-fee cap will save merchants some money for a while, which could, in theory, be passed on to their customers, though it's unclear how much that will happen in practice. But there's good reason to think that, in the long run, these changes may not be an unambiguous win for <a target="_blank" href="https://www.businessinsider.com/credit-card-debt-interest-rates-consolidation-economy-recession-soft-landing-2024-2">credit-card customers</a>: Financial firms are very good at getting money out of people. There are all sorts of levers card issuers can and will pull to try to recuperate any lost revenue streams elsewhere. Where one door closes, a window opens — one many consumers may be surprised to see on their next credit-card statement."Banks will always be able to find other places to recoup revenue for things like this," Matt Schulz, the chief credit analyst at LendingTree, told me. "I would imagine that we will see other fees increase over the next little while."In the wake of the Visa/Mastercard settlement, analysts at UBS wrote in a note to investors that lost revenue due to caps on credit-card late fees and swipe fees, as well as impending changes to lower debit-card swipe fees, would send companies such as JPMorgan Chase, American Express, and Synchrony Financial looking for offsets elsewhere. There are a number of areas financial-services firms can turn to so they can make that money back, they said, including <a target="_blank" href="https://www.businessinsider.com/personal-finance/average-credit-card-interest-rate">charging more interest</a> and layering in various additional fees on items such as getting printed statements. They also said they thought there would be more fee-based card products, as in cards with annual fees."As the economics evolve, we would not expect the banks/card issuers to sit idle," the analysts wrote.Mark Elliot, the chief customer officer at LendingClub and a banking-industry veteran, noted that <a target="_blank" href="https://www.businessinsider.com/credit-card-interest-rates-late-fees-are-rising-recession-2023-11">annual interest rates for credit-card debt </a>are extra high right now, which could make it harder for companies to ratchet them up even further, though not impossible."We've seen a lot of research that most customers are not even as aware of what the rate is on their card as they probably should be, so the card companies could increase that," he said.Companies could look to <a target="_blank" href="https://www.businessinsider.com/visa-mastercard-merchants-agreement-impacts-credit-cards-reward-programs-2024-3?utm_source=Iterable&amp;utm_medium=email&amp;utm_campaign=campaign_Insider%20Today,%20March%2027,%202024">downgrade credit-card rewards</a>, which would save them money by not having to pay them out, though everyone is a little hesitant to alienate rewards customers. There are other places where banks and credit-card companies can look to <a target="_blank" href="https://www.businessinsider.com/personal-finance-credit-card-interest-rates-decide-whether-keep-card-2023-10">pay for rewards</a> like hotel points, miles, and cash back, such as upping foreign transaction fees or transfer fees or drawing from elsewhere. The Visa/Mastercard settlement allows retailers to add a surcharge for people with fancier rewards cards, which often come with higher swipe fees, but it's not clear how many merchants will do that. They don't want to drive away customers, especially more affluent, higher spenders, which rewards-card holders tend to be."Most merchants don't want to put themselves in the position of being the bad-guy tax collector on Visa and Mastercard's behalf," Doug Kantor, the general counsel at the National Association of Convenience Stores, said.According to the Merchants Payments Coalition, Mastercard is now <a target="_blank" href="https://news.bloomberglaw.com/daily-labor-report/mastercard-still-raising-some-fees-on-retailers-after-settlement">planning to increase</a> different credit card fees soon, it's "network assessment" fee.Banks and credit-card issuers have already been discussing in earnings calls their plans for what to do on fee clampdowns. With regard to the late-fee cap, Citi's chief financial officer, Mark Mason, said in its January call that the bank was planning to make up the lost revenue with various "offsets and mitigants," though he didn't specify what those were. The same month, Capital One CEO Rich Fairbank said the CFPB rule, once implemented, would have a "significant impact" on its profits and losses in the near term but that the company could deploy "mitigating actions" to eventually counteract it. Of course, things do not have to be this way. Banks have financial incentives to make a public fuss whenever any revenue stream is threatened, though it's not clear how big of a threat this actually is to their business or just what magnitude of changes they would need to make up the revenue. Whatever the reality, if they yell loud enough that some regulatory or legislative change will destroy their business, it ups the chances that said change will be reversed or never go through in the first place. And, on a fundamental level, many financial firms <a target="_blank" href="https://www.levernews.com/the-lie-banks-use-to-protect-their-late-fee-profits/">don't need such high profits</a> to stay afloat in the first place, as much as their shareholders may demand them.How many levers companies like JPMorgan Chase and Capital One can pull may also depend on competitive factors, Ira Rheingold, the executive director of the National Association of Consumer Advocates, said. Companies do have to contend with one another in terms of what types of annual fees they can get away with or interest rates they can charge. "I think there are some fundamental incentives that will keep them from going too crazy," he said.The scenario does appear to be somewhat of a whack-a-mole situation — one fee is axed here, another fee appears over there. Amanda Jackson, the director of consumer campaigns at Americans for Financial Reform, said the only way to actually end this frustrating fee game was for the government to step in, as it's attempting to do with the late-fees limit, and set rules that apply to a wider swath of charges."We need regulations with true reforms that allow for billions to be saved," she said.So next time your credit-card bill lands at your door, you may want to take a closer look at it to see whether any surprise extra charges wound up in there — and to see what your interest rate is.<a target="_blank" href="https://www.businessinsider.com/author/emily-stewart">Emily Stewart</a> is a senior correspondent at Business Insider, writing about business and the economy.

Next time you get your credit card statement, you may want to give it a close look

<ul class="summary-list"><li>US credit card debt hit $1 trillion for the first time ever this year.</li><li>That's actually not excessive when considering factors like wage growth, experts told Insider.</li></ul>America's collective credit card bill has never been higher — but despite the eye-popping dollar amount, the consumer debt situation isn't as bad as it seems, experts told Insider.<a href="https://www.businessinsider.com/consumer-credit-card-debt-tops-1-trillion-first-time-ever-2023-8">The $1 trillion milestone for US credit card debt</a> was met with concern from commentators earlier this year, who feared that Americans' spending habits are becoming unsustainable, especially amid dwindling pandemic savings and an uncertain economic outlook. To be sure, $1 trillion is a lot, but that figure needs to be examined in the context of other factors, like income and wealth, economists say. And with those considerations, the hefty credit card balance in the US actually isn't much of a problem. "In aggregate, I think consumers are in good shape and they have not overborrowed," Mark Zandi, the chief economist of Moody's Analytics, told Insider. "Low-income households, less true. They've been more stretched and having more difficulty. But in aggregate, consumers are in a pretty good spot."That could spell good news for the economy, as Wall Street forecasters have warned that the <a href="https://www.businessinsider.com/us-economy-resilient-consumer-spending-may-not-last-bloomberg-survey-2023-9?inline-endstory-related-recommendations=&amp;_gl=1*1pfab8m*_ga*MjMxMzA1Mzg2LjE2NTY0NDQxNTU.*_ga_E21CV80ZCZ*MTY5NTMxOTYyOC42NjAuMS4xNjk1MzIxOTkxLjUzLjAuMA..">weakening American consumer</a> could pose a huge vulnerability to economic growth. <a href="https://www.businessinsider.com/us-households-on-brink-household-savings-dry-up-september-fed-2023-9">Americans are set run out of their excess savings</a> by the end of this quarter, according to the San Francisco Fed – an event some analysts have said <a href="https://markets.businessinsider.com/news/stocks/recession-outlook-us-economy-growth-slowdown-savings-investment-interest-rates-2023-4">could raise the risk of a recession</a>.But there are five signs those concerns are misplaced – and <a href="https://markets.businessinsider.com/news/stocks/economy-no-recession-consumer-spending-strong-stock-market-outlook-debt-2023-7">consumers and the economy are doing just fine</a>.<h3>1. Spending growth has remained stable, despite blowing past the $1 trillion milestone</h3>The nominal figures behind the total credit card balance are misleading, especially when you adjust for inflation. Real consumer spending growth has actually stayed stable at around 2% for the past few years, Zandi said. That's a healthy pace – strong enough to sustain economic growth this year, but not so strong as to overheat the economy and stoke higher inflation."I think consumer spending has been exactly where it needs to be," Zandi told Insider. "It's actually quite incredible how consumers have calibrated their spending. Not too much, not too little, just right, exactly what you want to see."<h3>2. Credit card utilization is low</h3>Credit use is actually fairly modest in the grand scheme of things, Zandi says.According to Michele Raneri, the vice president of financial services research at Transunion, credit card utilization has stayed around 22%. That's a fairly sustainable ratio, as it means Americans have room to tack on more to the credit lines should an unexpected emergency come up. "And even more recently, they've started to pull back in significant part because they don't need the cash as much as they did a year ago because inflation has declined and wage growth is stronger than inflation," Zandi added.Americans' real incomes are also rising, Zandi said, which can help consumers build wealth and slow down their credit usage. <a href="https://www.bls.gov/news.release/realer.nr0.htm">Real hourly wage growth accelerated 0.5%</a> year-over-year during the month of August, the Bureau of Labor Statistics reported.<h3>3. Some of the debt is being fueled by first-time credit card holders</h3><a href="https://www.businessinsider.com/gen-z-rack-up-credit-card-debt-faster-millennials-genx-2023-3">GenZ is a big contributor to the latest surge in credit card debt</a> – which is normal, Raneri said, since that generation is at the age where many are starting to get access to credit for the first time. Gen Zers are also not high-income earners – so it makes sense that they're making more use of credit cards, which helps young consumers stretch their spending and keep up with the pace of inflation, she added.Total balances on credit cards held by Gen Z were up 52% to $55 billion over the past year, according to second quarter TransUnion data, though total balances across all US card holders was up just 17% to $963 billion. <a href="https://www.bls.gov/news.release/realer.nr0.htm" target="_blank" rel="noopener">That's the fastest credit growth rate of growth out of any generation,</a> with Gen Zers contributing around 17% of all new US consumer debt added over the past year.<h3>4. Americans are cushioned with tons of equity</h3>Though some lower-income consumers are in danger of defaulting or slipping into delinquency on their credit card debt, Americans are shored up with tons of equity, Raneri said, mainly in the form of rapidly appreciation home values. In fact, LendingTree noted this summer that <a href="https://markets.businessinsider.com/news/commodities/housing-market-homeowners-equity-trillion-lendingtree-house-prices-value-rates-2023-8">Americans are sitting on a whopping $$28.7 trillion of home equity</a> that can be tapped if needed, and Wells Fargo has said that the huge run up in home prices in recent years could <a href="https://markets.businessinsider.com/news/commodities/housing-market-home-values-consumers-prices-savings-fed-inflation-2023-8?utm_medium=ingest&amp;utm_source=markets">keep consumers afloat in the event of a downturn</a>. There are also fewer new loans being issued now compared to more distressed periods like 2008, for instance – which is why Raneri doesn't see any risk of another crisis resulting from consumer debt."There's a cushion there that consumers can still use to absorb as they repay the debt that they've got or straight out what their spending is," she added.<h3>5. Delinquencies are slowing</h3>The delinquency rate on credit card loans rose to just 2.77% over the past quarter, according to <a href="https://fred.stlouisfed.org/series/DRCCLACBS" target="_blank" rel="noopener">Fed data</a>. That's only fractionally higher than the delinquency rate in the second quarter of 2019, before the pandemic, and it's well-below the delinquency rate during the 2008 crisis, which saw credit card delinquencies peak at 6.77%. Lenders are also tightening their underwriting standards before doling out cash, Zandi said, which should help the delinquency rate decrease in the future. Already, the delinquency rate on loans issued in 2023 is lower than the delinquency rate on loans issued in 2021 and 2022. That suggests credit card delinquencies will soon peak around the fourth quarter of this year before declining, he estimated.In fact, Zandi doesn't see America's spending boom as a problem unless the US has a recession, which could spark job losses and cause delinquencies to rise. But that isn't his expectation over the next year:"I think the economy will be resilient enough, in part because consumers are in such good financial shape in aggregate, that we won't suffer a recession between this time and the end of 2024," he said – all good news for the private debt picture.Government debt is a different story. The <a href="https://markets.businessinsider.com/news/bonds/treasury-yields-jump-us-debt-hits-record-33-trillion-2023-9#:~:text=US%20national%20debt%20has%20ballooned,its%20policy%20meeting%20on%20Wednesday.">US debt balance just notched $33 trillion</a> for the first time ever, something economists have warned could <a href="https://markets.businessinsider.com/news/bonds/us-debt-economy-outlook-government-spending-deficit-bond-market-treasuries-2023-9">blow up into a bigger problem</a> in the future.

America's $1 trillion credit card bill really isn't as bad as it seems

<ul class="summary-list"><li>Americans spent $164 billion on credit card interest and fees in 2022.</li><li>The timing of this growth in debt couldn't come at a worse time.</li></ul><a target="_blank" href="https://www.businessinsider.com/consumer-credit-card-debt-tops-1-trillion-first-time-ever-2023-8">Credit card debt</a> is already at a record level and growing at a time when interest rates for those accounts are also skyrocketing.For many, this debt is just another financial burden on top of things like auto and <a target="_blank" href="https://www.businessinsider.com/student-loan-forgiveness-who-will-qualify-second-attempt-biden-education-2023-12">student loans</a> and unaffordable housing that are putting a lot of <a target="_blank" href="https://www.businessinsider.com/recession-outlook-economy-consumer-spending-gone-2023-9">pressure on the American consumer</a>. However, credit card balances are especially worrisome because they are going to keep getting worse.According to a <a target="_blank" href="https://wallethub.com/edu/how-much-americans-pay-in-credit-card-interest-and-fees/129964">new study from WalletHub</a>, Americans spent $164 billion on credit card interest and fees in 2022. That exceeds the pre-pandemic amount of $158 billion and is 53% higher than in 2014 when it was measured at $107 billion.To put that number in perspective, the average credit card account accrued $296.95 in interest and fees in 2022 — in 2021, that figure was $264.47.Now consider that at the start of the pandemic, the average American held 3.8 credit card accounts, according to the consumer credit reporting company <a target="_blank" href="https://www.experian.com/blogs/ask-experian/average-number-of-credit-cards-a-person-has/">Experian</a>.That means the average American could be spending $1,140 every year on credit card interest and fees alone.<div type="image" title="A discarded credit card" height="1667" width="2500" msid="105761865" hostid="261" sizebytes="527360"></div><a target="_blank" href="https://www.sofi.com/learn/content/average-salary-in-us/#:~:text=The%20national%20average%20salary%20is,a%20worker%20earns%20per%20year.">According to SoFi Bank</a>, the average salary for Americans in 2022 was $60,575. That means the average American adult loses nearly 2% of their pre-tax income just by paying credit card fees and interest.That is also just the average. <a target="_blank" href="https://www.federalreserve.gov/publications/2022-economic-well-being-of-us-households-in-2021-banking-and-credit.htm">According to the Federal Reserve</a>, 40% of American adults carry a credit card balance from one month to the next. So, the outstanding balances, associated fees, and interest disproportionately affect that group. Some accounts without balances still have some charges, such as annual fees, but this suggests that the average American who carries a balance is spending much more than $1,140 every year on fees and interest.The timing of this growth in debt couldn't come at a worse time.<h2>Americans have been accruing a lot of credit card debt at a terrible time</h2>According to the Federal Reserve Bank of New York, Americans had nearly $1.1 trillion in <a target="_blank" rel=" nofollow" href="https://www.newyorkfed.org/newsevents/news/research/2023/20231107">credit card debt</a> in the third quarter of this year. Balances have now increased for <a target="_blank" rel="" href="https://www.businessinsider.com/consumer-debt-credit-card-balances-fed-loans-mortgage-student-loans-2023-11">eight consecutive quarters.</a><div type="image" title="Total outstanding credit card balances." height="1154" width="1646" msid="105761866" hostid="261" sizebytes="36338"></div>But that is just part of the problem. Not only are balances ballooning, but interest rates are also soaring.The Federal Reserve first started hiking rates in March 2022 in an effort to get inflation under control. Credit card interest rates, which had already been at their highest level since the mid-1990s, started soaring even higher.<div type="image" title="Average interest rate for credit cards." height="1264" width="1642" msid="105761867" hostid="261" sizebytes="60790"></div>According to the Fed, the interest rates are still growing at a substantial pace. The average interest rate for accounts accruing interest was 22.8% in the third quarter of this year, up from 22.2% in the second quarter.And things are getting worse for new accounts.<a target="_blank" href="https://www.lendingtree.com/credit-cards/credit-card-debt-statistics">According to LendingTree</a>, the average annual percentage rate offered for a new credit card is now 24.6%, the highest since they began tracking the rates in 2019.We are also seeing more credit cards surpassing the 30% annual percentage rate barrier, which was considered a no-no in the past, with some going as high as 33.2%, <a target="_blank" href="https://www.bankrate.com/finance/credit-cards/retail-store-credit-card-survey/">according to Bankrate.</a>"We used to see 30% as the high end for retail credit card APRs," wrote Ted Rossman, Bankrate's senior industry analyst. "In fact, 29.99% was an artificial barrier that few dared to cross — for psychological reasons, mostly. But the market has blown past that threshold."Of course, having a credit card balance means more than interest and fees. Those balances need to be paid back at some point.<h2>Meeting minimum payments is getting harder for many</h2>According to WalletHub's research, the average balance for a credit card in 2022 was $5,525, with a minimum monthly payment of $110.50.A survey performed by <a target="_blank" href="https://www.businesswire.com/news/home/20230118005337/en/New-York-Life-Wealth-Watch-2023-Outlook-1-in-3-Individuals-Hopeful-About-Finances-in-2023-Despite-Inflation-Recession-Concerns">New York Life</a> at the end of 2022 found that the average US adult respondent with credit card debt paid an average of $430 per month towards paying off that debt.The burden is forcing more Americans into delinquencies. <a target="_blank" href="https://libertystreeteconomics.newyorkfed.org/2023/11/credit-card-delinquencies-continue-to-rise-who-is-missing-payments/">According to the New York Fed</a>, the percentage of newly delinquent credit card users has risen sharply in the last two years and now exceeds pre-pandemic levels.<div type="image" title="Newly delinquent credit card users." height="866" width="970" msid="105761868" hostid="261" sizebytes="31630"></div>We are also seeing more credit card accounts in "persistent debt," where the amount of interest and fees being charged to the account is greater than the amount of principal being paid down by the account holder.According to Consumer Financial Protection Bureau data <a target="_blank" href="https://www.cnn.com/2023/10/25/economy/credit-card-debt-interest-rate/index.html">shared with CNN</a>, 9.9% of general-purpose credit card accounts in the US in 2022 were in "persistent debt." That was up from 8.4% the year before.<h2>A bit of relief may be coming</h2>The Biden administration is aiming to crack down on "<a target="_blank" href="https://www.businessinsider.com/americans-could-save-billions-slash-credit-card-late-fees-cfpb-2023-2">junk fees</a>," which are fees that can confuse consumers because they are not obvious upfront. This would include lowering credit card late fees from about $30 to $8.But that might be a bandaid on a broken leg.<a target="_blank" href="https://www.businessinsider.com/americans-could-save-billions-slash-credit-card-late-fees-cfpb-2023-2">Lowering late fees</a> could save Americans $9 billion but would still leave about $155 billion in interest and other fees. And those are still growing.Then there is the growing use of buy now, pay later programs, which let shoppers pay in installments every week or month. While the Fed's "<a target="_blank" rel=" nofollow" href="https://www.atlantafed.org/blogs/take-on-payments/2023/11/27/holiday-shopping-with-buy-now-pay-later">2022 Survey of Household Economics and Decisionmaking</a>" found that 83% of respondents paid off their buy now, pay later programs on time — avoiding interest payments — there is a risk that paying on time becomes less common as overall consumer debt continues to grow.To be sure, there are a lot of positive signs in the economy right now, <a target="_blank" href="https://www.businessinsider.com/high-inflation-goods-durables-deflation-groceries-expensive-federal-reserve-cars-2023-12">like cheaper prices</a> combined with consumer spending, that have improved the chances of avoiding a recession. But with credit card debt going through the roof, the <a target="_blank" href="https://www.businessinsider.com/taylor-swift-eras-tour-helped-us-economy-2023-9">blissful spending</a> could come to a screeching halt.

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