Fed Report Shows Record-High Annual Increase in Credit-Card Balances
Americans find themselves increasingly burdened by credit-card debt as the relentless grip of chronic inflation tightens its hold on the cost of essential goods. The Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit was just released, showing a record high 17 percent year-over-year increase in credit-card balances during the first quarter of 2023.
However, the quarterly change remained flat at last quarter’s record of $986 billion. Still, the lack of a decline is unprecendeted for this time of the year.
“Normally, credit-card balances fall from the fourth quarter to the first quarter as the dust settles on the holiday shopping season and consumers prioritize debt payoff as a New Year’s resolution,” Senior Bankrate industry analyst Ted Rossman told The Epoch Times. “In fact, this is the only time since the New York Fed started tracking these figures in 2003 that credit-card balances did not fall from the fourth quarter to the first quarter.”
The root causes of this distressing phenomenon are manifold, and can be traced back to the relentless march of inflation coupled with incessantly rising interest rates, as explained by Matt Schulz, the chief credit analyst at LendingTree, during an interview with Fox Business.
Recent data from a Bankrate database, dating back to 1985, indicate that the average credit-card annual percentage rate (APR) reached an all-time high of 20.33 percent last week. This surpasses the previous record of 19 percent set in July 1991. Consequently, individuals carrying debt to offset soaring prices may ultimately pay considerably more for goods and services over the long term.
Burgeoning debt-financing costs could soon take their toll on the country’s most vulnerable consumers.
“It’s been a rough year for credit-card holders,” Schulz acknowledged. “Even though the Fed seems to be taking their foot off the gas with interest rates, credit-card holders shouldn’t expect a significant improvement anytime soon due to the lack of declining interest rates.”
The alarming surge in inflation has placed an enormous strain on the finances of most American households, compelling them to pay considerably more for everyday essentials such as food and rent.
Low-income Americans bear the brunt of this burden, as price fluctuations disproportionately affect their bottom line. Inflation, despite significantly receding from its peak of 9.1 percent, remains uncomfortably high.
According to the latest report from the Department of Labor, the Consumer Price Index rose by 0.4 percent in April compared to the previous month, a significant increase from March’s 0.1 percent uptick. On an annual basis, prices surged by 4.9 percent, more than twice the average observed before the pandemic.
Biden to Limit Credit-Card Fees
Earlier this year, the Biden administration unveiled a proposed rule that would significantly reduce credit-card late fees. The rule, set forth by the Consumer Financial Protection Bureau (CFPB), aims to curtail exorbitant late fees levied by credit-card issuers. Currently, these fees can amount to approximately $30, placing an undue burden on consumers. However, under the proposed rule, the cap on late fees would be significantly lowered to just $8, providing substantial relief to cardholders.
“People have lost faith in government’s ability to deliver, have lost faith in private sector and what they advertise or say they’re delivering, and it’s about just letting people know that we see what’s happening and its totally appropriate to do what we’re doing,” President Joe Biden said during his Competition Council meeting in early February.
