Citigroup, which reported a profit of $19 billion last year, said that its branded cards business increased 8 percent in North America last year. Even Wells Fargo, which has been struggling to rebound from scandals, found a bright spot with consumers, reporting that credit card loans were up $2 billion during the fourth quarter.
“The credit card market, it’s still a leading growth driver for the consumer bank,” said Ken Leon, director of equity research at CFRA Research.
Consumers’ growing debt loads, expected to increase $80 billion last year, are a cause for concern among some economists but show no sign of slowing. Consumers have shifted away from cash and toward online shopping, making credit cards ubiquitous, industry analysts say. Meanwhile, the strong economy and low unemployment have kept delinquencies low.
“Even though consumers are confident, people are still carrying significant debt,” said Ted Rossman, an analyst for CreditCards.com. “From a bank’s perspective, that is a big moneymaker. From a consumer’s perspective, I would encourage everyone to pay that down.”
Consumers’ appetite for credit cards has not been dampened by relatively high interest rates. The average rate is 17.3 percent, near a record high, for consumers with a good credit score, according to CreditCards.com, which surveys the country’s 100 most popular cards. The cost is steeper for consumers with lower credit scores, 25.30 percent, according to the site.
Sen. Bernie Sanders (I-Vt.), who is running for the Democratic nomination for president, and Rep. Alexandria Ocasio-Cortez (D-N.Y.) introduced legislation last year to cap credit card interest rates at 15 percent, but the measure hasn’t gained ground. And banks haven’t significantly lowered rates they charge on credit cards despite several interest-rate cuts by the Federal Reserve, bolstering the industry’s profits, analysts have said.
“Vulnerable borrowers are the most vulnerable to the higher interest rates,” Rossman said.
Such high rates made it difficult for Jonathan Isaza, a Florida college student, to pay off his debt. After moving out on his own, Isaza said, he was making just $10 an hour. He didn’t factor in the cost of car insurance in his budget and accumulated about $2,000 in credit card debt.
“Honestly this is unusual to me. I took a personal financial management class in high school that taught me how to save and budget my money well and how to develop good credit,” he said in a Twitter exchange. “Ironically enough, I’m a finance major.”
The high interest rates, nearly 20 percent, made it difficult to pay down the debt, Isaza said. “I would pay what I could but since the balance was high at the time the interest would put it back to where it was,” he said.
Eventually, Isaza said, he found a better-paying job and switched insurance companies, helping him drive down his debt. “I can finally start saving,” he said.
Joe Martin, a marketing executive in Utah, is among many consumers who are able to avoid interest changes by paying off their bills every month. Martin pays a yearly fee for two credit cards he uses for routine purchases while accumulating reward points for free flights and hotel stays.
“I have always paid things off quickly,” Martin said, adding that it is a habit his parents encouraged.
He is at the “heart of the storm” of new credit card offers but has yet to be tempted, Martin said. “We go to Costco frequently, and they have a [credit card] offer, but I don’t necessarily need that.”
Also driving profits for banks are “swipe fees” that card companies collect from retailers, typically 2 percent of the total purchase, industry analysts say. The more consumers use their cards, the more companies earn — whether the customer carries a balance or not.
Wells Fargo reported that the volume of credit card purchases increased 4 percent during the fourth quarter and that the number of active accounts had reached 8.1 million. Last year, JPMorgan Chase said merchant processing volume increased 11 percent.
“The most profitable customers for credit companies are high-income people who spend a lot and pay their bill on time,” said Aaron Klein, a Brookings Institution fellow.