New Data Shows Banks ‘Triple Dipping’ By Increasing Credit Card Interest, Annual Fees and Swipe Fees

Contact: J. Craig Shearman
(202) 257-3678

WASHINGTON, February 27, 2024 – Recent data shows the rise in credit card “swipe” fees that has driven up prices for consumers by billions of dollars over the past decade has come as banks have also dramatically increased annual fees and the money they take from consumers through interest, the Merchants Payments Coalition said today.

“The card industry is triple-dipping, making millions of consumers pay three times for their credit cards,” MPC Executive Committee member and National Association of Convenience Stores Senior Vice President of Government Relations Lyle Beckwith said. “The largest banks make consumers pay an annual fee whether they use their card or not, then pay higher prices because of swipe fees every time they make a purchase, then pay huge interest rates on the balance. By charging more in all three areas, banks continue to get rich on the backs of small businesses and American consumers struggling to make ends meet.”

The Consumer Financial Protection Bureau reported last week that “
credit cards have never been this expensive” and that the average annual credit card interest rate was a record-high 22.8 percent in 2023, up from 12.9 percent in 2013. Furthermore, the average rate was 14.3 percentage points higher than the prime rate, compared with 9.6 percentage points higher in 2013, giving banks a record profit margin on interest.

Interest charged on credit cards by major banks totaled $105 billion in 2022, and in 2023 that included an extra $25 billion that came from increasing the difference between the prime rate and the amount charged to cardholders, the CFPB said. The higher profit margin cost the average cardholder about $250 a year extra.

The CFPB also said the nation’s
25 largest card-issuing banks charge interest rates eight to 10 percentage points higher than small/medium-sized banks and credit unions, with 15 large banks charging top rates over 30 percent. That cost those banks’ cardholders an extra $400-500 a year in interest, the agency said.

In a
separate report, the CFPB said the average annual fee for each account that carried such a fee was a record $105 as of 2022, up from $62 in 2015. Revenues from the fees more than doubled during the same period, from $3 billion to $6.4 billion.

Annual fees are even higher at large banks, averaging $157, compared with $94 at smaller issuers. And large banks are also
more likely to charge an annual fee, with 27 percent doing so compared with 9.5 percent of small institutions. Overall, 16.3 percent of cards have an annual fee.

Meanwhile, credit card swipe fees totaled $126.4 billion in 2022, more than doubling from $51.5 billion a decade earlier, according to the Nilson Report. With debit cards included, swipe fees totaled $160.7 billion in 2022, up from $66.5 billion 10 years earlier. As most merchants’ highest operating cost after labor, swipe fees are too much to absorb and drive up prices paid by the average family by over $1,000 a year.

The data comes as Senate Judiciary Committee Chairman Richard Durbin, D-Ill., one of the lead sponsors of the Credit Card Competition Act, has scheduled an
April hearing on the lack of competition over swipe fees. In addition two new Senators, Jack Reed, D-R.I., and Josh Hawley, R-Mo., have added their names as cosponsors of the bill, which would bring competitive dynamics to the credit card market.

Visa and Mastercard – which control over 80 percent of the market – each centrally set the swipe fees charged by banks that issue cards under their brands, and also block transactions from being processed over other networks that could do the job with lower fees and better security. The legislation would require banks with at least $100 billion in assets to enable cards they issue to be processed over at least two unaffiliated networks – Visa or Mastercard plus a competitor.

Networks like NYCE, Star and Shazam, which already process Visa and Mastercard PIN debit card transactions, have been most often cited as the likely second network. Discover has been among potential competitors because it already processes Discover credit card transactions at 70 million merchants in over 200 countries. Passage of the CCCA is
still needed for Visa and Mastercard transactions to be routed over another network despite last week’s announcement that Capital One plans to acquire Discover.

Banks would choose which networks to enable but merchants would then choose which to use, resulting in competition over fees, security and service that is expected to save merchants and consumers
over $15 billion a year. Rewards would not be affected, security would be improved, consumers would still use the same cards, and community banks and all but one credit union would be exempt.

About MPC

The Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants. Follow MPC on Twitter, Facebook or LinkedIn for the latest on swipe fees.