Recent record highs in credit card balances may be attributed to various factors, but research reveals an explanation that hasn’t been extensively explored: ignorance.
Nearly a quarter of Americans surveyed by the LendingClub admit they don’t know their total credit card debt, and almost half are unaware of the current APR on their cards.
Even among those who do know their APR, a third don’t realize that their rate is directly tied to the prime interest rate. This leaves many people unclear about how and why their interest rates change.
Nearly half of respondents surveyed were unaware that their credit card APR rose by over 5 percentage points due to Fed rate hikes between March 2022 and July 2023. More than a third don’t recognize that credit card APRs can fluctuate over time, independent of payment history or credit status.
Read the Schumer Box
Credit card companies are not required to proactively notify consumers of rate changes beyond including the information in statements. As a result, over a quarter of Americans surveyed said they don’t know where to find their interest rate and were unaware that their rates increase after a promotional period ends.
Card issuers, on the other hand, are required to disclose cardholders’ rates.
“Credit card issuers have a responsibility to ensure there is clarity in their disclosures,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “The Schumer Box, named after the New York senator, makes it easy and clear to see both interest rates and fees for any card. It is written at about a fifth grade reading level and is hard to miss.”
“If almost half of customers do not know their rates, that indicates more about poor household planning than anything else,” he said. “Borrowers should not fall back by saying they could not find it. Credit card statements disclose the rates, and fully document charges. Customer service call centers are ready to answer questions on rates and are trained to explain them.”
