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Major issuers' rate hikes send national average card APR higher

Chase, Citi among those raising rates, even as BofA pledges not to

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Several credit card issuers raised interest rates this week, driving the national average annual percentage rate on new credit card offers upward for the third straight week to 12.64 percent, according to the CreditCards.com Weekly Credit Card Rate Report.

CreditCards.com's weekly rate chart
  Avg. APR Last week 6 months ago
National average 12.64% 12.62% 12.35%
Business  9.80% 9.69% 16.74%
Low interest 11.92% 12.10% 12.05%
Cash back 12.36% 12.36% 13.90%
Reward 12.76% 12.61% 12.19%
Balance transfer 13.10% 13.10% 10.80%
Instant approval 13.32% 13.32% 11.49%
Airline 13.60% 13.97% 14.44%
Bad credit 14.29% 14.29% 11.79%
Student 14.45% 14.45% 14.90%
Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Source: CreditCards.com
Updated: 10-08-2009

Card issuers have steadily increased APRs in recent weeks to guard themselves against a tough economic backdrop and upcoming regulatory changes. This week, American Express, Chase and Citi were among those banks raising rates. Wells Fargo also said it plans to raise interest rates on most of its cardholders by 3 percentage points ahead of the enactment of sweeping new credit card industry regulations.  

These moves come even as Bank of America pledged Monday to not hike interest rates between now and February 2010, when the Credit CARD Act takes effect. Other banks said they are not planning to follow BofA's lead, amid rising unemployment levels that threaten their profits.

Data support those concerns. The unemployment rate reached a 26-year high of 9.8 percent in September, according to data released earlier this month. Also, Fitch Ratings reports that credit card charge-off rates -- which measure debts that banks decide they are unable to collect -- rose to a record high in August. Fitch noted that charge-offs will likely continue to set records in the coming months and remain elevated until employment picks up.

Lenders say the latest changes are an effort to align the interest rates on new card offers with the APRs for existing cardholders. "Over the past few months, we have raised APRs [on current cardholders], so we want to make sure the acquisition offers are consistent with that," says Desiree Fish, spokeswoman for American Express. As for those existing cardholders, Fish says their cards were repriced due to numerous external factors she is hesitant to name. "Our pricing has to be responsive to the business and economic environment," she says. 

Experts don't expect that environment to improve much anytime soon. In a speech on Monday, New York Fed President William Dudley labeled the unemployment rate "much too high" and that the economic recovery could be "less robust than desired."

Joblessness and tightening credit are hitting consumers hard, too. On Wednesday, the Federal Reserve's monthly G.19 report showed credit card balances tumbled by nearly $10 billion in August, a drop blamed on nervous consumers tightening their belt and trimming debt during the recession. The 13.1 percent plunge in card debt marked the 11th straight monthly decline, representing the longest pullback in balances on record.

See related: BofA pledges moratorium on credit card interest rates hikes, Obama signs credit card reforms into law

Published: October 8, 2009


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