Rising Credit Card Debt Alarms Lawmakers and Alters Consumer Behavior

  • Debt Peaks: For the first time ever, total credit card debt exceeded $1 trillion in Q2 2023.
  • Rising Interest Rates: Data from the Federal Reserve in August recorded an unprecedented average interest rate of over 21% for all cardholders. Retail store cards are particularly onerous, with some charging rates over 30%, as reported by industry analyst Ted Rossman from CreditCards.com.
  • Legislation in the Offing: Sen. Josh Hawley has proposed the “Capping Credit Card Interest Rates Act”. This legislation targets a maximum APR of 18% and curtails the ability of companies to heighten other fees.

Other Regulatory Initiatives

  • The Consumer Financial Protection Bureau (CFPB) has suggested a new rule to cut down fees related to late credit card payments. Specifically, this would mean a reduction in fees from a potential $41 to just $8 for missed payments.
  • A collective effort from Senators Richard Durbin, Roger Marshall, J.D. Vance, and Peter Welch introduced the “Credit Card Competition Act” in June, aiming to curtail merchant card transaction fees that consumers often bear.

Challenges in Implementation

Despite growing support, there’s uncertainty surrounding the implementation of these measures. Democrats are likely to back Sen. Hawley’s bill, but opposition in the Senate and a Republican-led House make its future uncertain.

The CFPB also faces potential legal battles that might invalidate its rule-making endeavors.

Impact on the Average American

  • Credit Reliance: Americans, grappling with inflation-induced price hikes on basic needs, have increasingly turned to credit cards. The Federal Reserve Bank of New York identifies these as the leading form of household debt, witnessing a surge of 70 million more accounts since 2019.
  • Rate Caps: There’s no prevalent federal ceiling on credit card interest rates. Exceptions exist, such as the 36% cap for active-duty servicemembers and their dependents and an 18% limit for federally chartered credit unions. Prior legislative attempts, like proposals from Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez in 2019, have sought to limit these rates.

Public Perception and Financial Behavior

A recent Affirm survey delves into American attitudes toward credit card debt:

  • 79% of Americans believe they could better manage their finances.
  • Increased savings were observed, with 68% resorting to this as a financial strategy in H1 2023. This likely contributes to 76% feeling prepared for a potential economic downturn.
  • Despite these savings, overspending remains an issue. Respondents reported an average over-spend of $350 over six months.

Alternative Payment Methods Gain Traction

With credit card debt concerns, ‘Buy Now, Pay Later’ (BNPL) has become a preferred choice for 48% of Americans. These services offer consumers an opportunity to better manage their spending by analyzing their financial position before approving a purchase.

Credit Card Perks and Dissatisfaction

  • A decline in consumer satisfaction with credit card rewards is evident from the J.D. Power 2023 U.S. Credit Card Satisfaction report. The value of rewards earned per dollar is a primary concern, especially for cashback cardholders. Interestingly, cardholders paying substantial annual fees (over $500) express dissatisfaction with the rewards relative to the fees they pay.
  • On a positive note, credit card installment plans, which offer fixed rates over standard variable rates, have been well-received, contributing to increased customer satisfaction.

The Way Forward

As credit card debt reaches alarming levels, addressing its ramifications requires a multi-pronged approach:

Enhanced Financial Literacy

There’s a pressing need to elevate financial literacy across the nation. Educational institutions, community organizations, and financial institutions should collaboratively roll out programs focusing on:

  • Budgeting: Teaching individuals to create and adhere to a budget can be instrumental in curtailing overspending.
  • Understanding Credit: Breaking down the complexities of interest rates, APRs, and fees associated with credit cards can empower consumers to make informed decisions.
  • Savings: Reinforcing the importance of regular savings, even in small amounts, can provide a cushion in challenging times.


As credit card debt reaches unprecedented levels, regulatory bodies and consumers alike are seeking ways to manage and alleviate the financial strain. Whether through legislation, alternative financial products, or individual financial strategies, the trend underscores the need for a systemic review of credit practices in the U.S.


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