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Black or Hispanic consumers consistently received higher credit card interest rates and lower credit limits than White consumers, the Government Accountability Office said, in a report released Monday.
“Cardholder accounts in the sample that were in billing zip codes with a majority of Black or African American or Hispanic or Latino residents likely had higher interest rates and lower credit limits and carried balances longer compared with accounts in predominantly White zip codes, as indicated by GAO analysis,” the GAO said in the report.
The report comes, as credit card issuers are under fire from the CFPB and other government agencies. In February, the CFPB has proposed an $8 a month limit on credit card late fees. The Biden Administration has lumped credit card late fees into the category of “junk fees.”
Financial services trade groups have bristled at that term and have opposed the late fee limit.
Perhaps to add to its ammunition, the CFPB issued a report last week showing that credit card profits are higher than before the pandemic.
GAO Results
In its report, the GAO examined 650,000 credit card accounts—mostly from 2013 through 2019—from the Federal Reserve System, in preparing the report.
The GAO said, for instance, that the difference in interest rates was on average was about 1.3 points higher for people living in majority-Black zip codes than people living in majority-White zip codes and 1.4 percentage points higher for people living in Hispanic-majority zip codes.
At the same time, using data from June 2013 through December 2021, GAO said, credit limits in zip codes with predominantly Black residents were on average $3,412 lower than people living in predominantly White zip codes. Credit limits for Hispanic residents were on average $4,285 lower than limits in largely White zip codes.
The GAO also examined the impact of the pandemic on credit card accounts—finding that cardholders paid down their balances, most likely because they had received economic stimulus assistance.
CFPB Report
In its report, the CFPB said that profits for general purpose cards reached 5.9%, as measured by annual return on assets, compared to 4.5% in 2019.
Credit card companies charged consumers the highest amount of interest and fees ever measured by the CFPB’s data.
The major card companies set interest rates far higher than major indexes, such as the federal funds rate, with an average APR margin of 15.4 percentage points above the prime rate in 2022.
Cardholders were charged more than $105 billion in interest in 2022, along with $25 billion in fees, the CFPB said.
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