Based on the average interest rate charged on credit card balances of 15.9%, that pay-down of $157 billion in credit card balances that consumers somehow engineered represents $25 billion a year in lost interest income for the banks!
That’s why banks are trying so hard to get consumers to borrow on their credit cards again. And that’s why the New York Fed, which is owned by the financial institutions in its district, finds that pay-down so “confounding.” We’re talking about $25 billion a year in banking income here.
The interest rate can be over 30% for consumers that cannot pay off their credit cards. If they had enough cash to pay off their credit cards at this rate, they would. But they’re stuck. Consumers that pay off their credit cards every month are often offered lower interest rates, but they don’t need to borrow on their credit cards. Banks also offer teaser rates of 0%, and then after a set period – after the consumer charged up the credit card and can no longer pay it off and is thereby stuck – the teaser rate switches to 29.9%.
Call it the credit card hustle.The Credit Card Hustle by the Banks & the Fed Hits Rough Spot | Wolf Street