The average credit card APR shot up again this week after multiple lenders hiked rates, according to the CreditCards.com Weekly Credit Card Rate Report.
The average card APR jumped to a record high of 16.32 percent - more than a full percentage point higher than where it stood at the beginning of 2017. A year ago, the average card APR clocked in at 15.29 percent.
Several credit card issuers boosted rates by 0.25 percent this week in tandem with the Federal Reserve's December 2017 rate hike. When the Federal Reserve hikes interest rates, lenders alter rates on most cards by the same amount.
Since December, most major issuers - including Bank of America, Capital One, Citi, American Express, Discover and Barclaycard - have hiked rates on nearly all newly issued credit cards. Some lenders, such as Capital One, left rates alone on cards that are reserved for consumers with poor or average credit, but hiked rates on other cards.
Rates are expected to rise again in the coming weeks as more lenders revise card offers.
CFPB: Fed hikes will continue to drive card rates higher
The average card APR has climbed significantly since December 2015 when the Federal Reserve first began gradually increasing interest rates after a seven-year pause. On Dec. 1, 2015, for example, the average card APR registered at just 14.96 percent. By Dec. 1, 2016, it climbed to 15.18 percent. In December 2017, it hit 16.15 percent.
Even with these higher rates, the average amount of interest cardholders are paying hasn't changed much since 2015, the Consumer Financial Protection Bureau (CFPB) found. According to the CFPB's biennial report on consumer credit cards, released in December 2017, the effective credit card interest rate - which measures how much people are actually paying, rather than how much issuers are saying they will charge - has remained relatively stable.
"Despite modest increases in retail APRs, the average cardholder revolving a balance is not paying a higher effective interest rate in 2016 than in 2015," wrote the CFPB. That may be due to more cardholders carrying a balance on cards with a promotional 0 percent interest rate , thus lowering the average amount of interest cardholders are paying. It's also possible that fewer cardholders are paying big penalty APRs, said the CFPB.
However, the average effective credit card rate has increased for cardholders with lower scores, said the CFPB. "Cardholders revolving a balance in below-prime tiers saw their effective interest rate rise from 16.8 percent in 2015 to 17.3 percent in 2016," wrote the CFPB.
Cardholders' effective interest rates are likely to increase over time as the Fed continues hiking rates.
According to the CFPB, most changes to cardholders' interest rates have been due to changes in the Federal Reserve's benchmark interest rate, the federal funds rate .
Since the CARD Act was implemented in 2010, credit card issuers have largely left cardholders' interest rates alone. Data from the CFPB, for example, found card issuers re-priced accounts much less often after the CARD Act was implemented - in part because they were sharply limited in their ability to hike rates without giving cardholders advance notice.
However, card issuers have shown no reluctance to hike rates when the Federal Reserve increases its benchmark interest rate. As a result, cardholders are likely to see substantial rate changes in the coming years as the Federal Reserve continues to bump up the federal funds rate.
That could lead to a substantial increase in overall debt, says the CFPB. "As of mid-2017, approximately $672 billion in revolving balances on general purpose cards and $48 billion of those on private label accounts are subject to variable rate repricing," said the CFPB. "A single percentage point increase in each rate would carry an estimated annual cost to consumers of over $7 billion. Even a 25 basis point increase in interest rates would likely carry an annual average cost of nearly $2 billion to consumers who revolve credit card debt."
If cardholders continue to pack on debt as interest rates increase, consumers with revolving credit card balances may wind up paying as much as $24.5 billion in extra interest charges over the next three years, said the CFPB.