US banks need to cut their credit card rates

Credit card APRs in the US are extremely high by both historical and international standards, and there is a strong economic and policy case for materially lower rates, especially for mainstream, lower‑risk borrowers.

How high are US credit card rates?

• The average APR on US credit card accounts that actually incur interest was about 22–23% as of late 2025.

• Federal Reserve data show commercial bank credit card plan rates near 21% in November 2025, roughly 5–7 percentage points higher than typical levels in the 1990s and early 2000s.

• Independent surveys in January 2026 put the average card rate above 24%, with many “rewards” and fee‑charging cards closer to 25–26% APR.

Why rates look excessive

• Funding costs for banks (what they pay on deposits and wholesale funding) are far below 20%, so a 22–25% APR embeds a very large spread for risk, overheads, and profit.

• Credit card operations are among banks’ most profitable businesses: sector profitability on card portfolios has recently run in the mid‑single digits of assets, higher than many other loan types, largely because of high interest on revolving balances.

• While delinquencies and charge‑offs have risen, especially in 2024–2025, they are not high enough on prime borrowers to justify across‑the‑board APRs above 20% for nearly all consumers.

Illustration

A household carrying a 3,000 dollar balance at 24% APR and making only minimum payments can easily pay over 1,000 dollars in interest over a couple of years, with most early payments going to interest rather than reducing principal.​

Current political debate

• President Donald Trump has publicly called for a temporary 10% cap on credit card APRs for one year, explicitly arguing that Americans are being “ripped off” by current rates.

• Banking groups warn that a hard cap at that level would cause issuers to cut credit limits, tighten approvals, and possibly push riskier borrowers toward more dangerous forms of credit, like payday loans.

• Some lawmakers and consumer advocates instead argue for tiered or higher caps (for example 15–18%), more transparent pricing, and limits on penalty rates rather than a single low ceiling.

Why cuts are justified (and where the line is)

• From a consumer‑welfare perspective, today’s typical 22–25% APRs function like a very large tax on financial distress and on people who cannot pay in full each month.

• There is a good argument that banks should lower rates for mainstream, lower‑risk customers toward the mid‑teens, and use risk‑based pricing more surgically instead of defaulting most revolving borrowers into 20%+ territory.

• A sudden, very low cap (like 10%) could indeed shrink access for riskier borrowers, but gradual, regulated or competitive reductions toward 14–18% for most accounts would still leave room for profit while easing household debt burdens.

What would actually help consumers

Even if banks resist cutting rates on their own, several steps could push them lower while protecting access to credit.

• Stronger disclosure: Clear lifetime‑cost warnings for carrying balances at current APRs.

• Regulatory guardrails: Limits on penalty and “default” APRs, and caps tied to benchmark rates (for example a fixed margin over the prime rate).

• Competition and switching: Easier balance‑transfers and automated refinancing into lower‑rate products (like personal loans) to pressure banks that keep APRs very high.

In short, there is a solid economic and fairness rationale for US banks to cut credit card rates substantially for most customers, but policymakers need to design changes carefully so cheaper credit does not come at the cost of many people losing access altogether.