Checking the Math Behind the CFPB’s Comparison of Credit Card Interest Rates Between Large and Small Issuers

February 29, 2024

WASHINGTON, D.C. – Earlier this month, the Consumer Financial Protection Bureau (CFPB or Bureau) published a comparison of credit card annual percentage rates (APRs) between large and small credit card issuers.

As the Consumer Bankers Association (CBA) previously discussed, while the Bureau focuses solely on APRs, credit issuers compete on a number of different dimensions: their ability to underwrite consumers; fees; rewards; and broader benefits like airline lounges, and a range of product innovations. 

Today, we check the CFPB’s math behind its claim that large issuers charge higher APRs than small issuers. In particular, we highlight how the CFPB put its finger on the scale by including credit unions in its small issuer data.

Credit union APRs are statutorily capped at 18 percent. This special interest rate reflects the fact that credit unions are mission-driven, member-focused nonprofits. This means they enjoy nonprofit tax status, benefits, and tailored regulations that come along with this mission.

Importantly for this discussion, under federal law credit unions serve different customers than large banks. Because credit unions have specific membership requirements, not all consumers across the country may be able to obtain a given credit union’s credit card. 

The CFPB’s math is skewed by its inclusion of credit unions. 

On February 16, the CFPB published a “Data Spotlight” from its Terms of Credit Card Survey, purporting to show that the reported Purchase APR spread “between the largest (Top 25) and small issuers across credit tiers was between eight to 10 percentage points.”

The CFPB’s Data Spotlight mentions the CFPB included federal credit unions in its definition of “small issuers,” but the CFPB does not share how that impacted its math.

Credit unions are fundamentally different from banks and, accordingly, should not have been included in the CFPB’s APR comparison.

As CBA has pointed out, large banks are subject to materially different regulatory requirements than small lenders and credit unions. Unlike small issuers, for instance, large issuers are subject to the Basel capital regime, which raises the cost of credit to low and moderate income consumers. Unlike credit unions, large issuers are subject to Federal Reserve Board oversight and Community Reinvestment Act requirements.

Most importantly for this context, large issuers, by law, serve different consumers than credit unions.

"By current federal statute, credit unions cannot serve the general public."

Credit unions serve important financial needs for their members. But dozens of credit union websites bear the same disclosure: “By current federal statute, credit unions cannot serve the general public.”

As described by the National Credit Union Administration, credit unions do not have customers, but instead have “members.” Credit union applicants must demonstrate they share what is known as a “common bond:” a shared employer; a family member’s membership in the credit union; living, worshiping, or attending school in a particular geographic area; or being part of the same place of worship, labor union, or owners’ association.

This means credit unions generally cannot serve consumers that walk in off the street (or increasingly, navigate in via the Internet) unless they meet membership criteria.

Removing credit unions from the CFPB’s survey data reduces the difference between big and small credit card issuers APRs.

CBA went through the CFPB’s Terms of Credit Card Survey, removed the credit unions, and then re-ran the CFPB’s APR comparison for median purchase APRs for large and small issuers. The results are striking (see Table 1 below).

Table 1: Median Purchase APR by Credit Tier

Institution Size

Poor Credit

(credit score 619 or less)

Good Credit (credit score 620 to 719)

Great Credit (credit score 720 or greater)

Large

28.5%

28.2%

23.0%

Small
(CFPB calculation; includes credit unions)

20.6%

18.2%

15.2%

Small
(CBA calculation; excludes credit unions)

26.3%

23.5%

18.3%

 

The CFPB argues its data shows the 25 largest credit card issuers charged customers interest rates of “8 to 10 points higher” than small issuers. But our math shows, after removing credit unions, the APR gaps narrow to just 2.2 percent for consumers with poor credit and less than five percent for other consumers (see Figure 1 below).

Said another way:

  • For consumers with “great” credit scores, the inclusion of credit unions accounted for 35 percent of its purported APR difference between large and small issuers;
  • For consumers with “good” credit scores, the inclusion of credit unions accounted for 50 percent of its purported APR difference between large and small issuers;
  • And for consumers with “poor” credit scores, the inclusion of credit unions accounted for 70 percent of its purported APR difference between large and small issuers.

Removing credit unions from the CFPB’s analysis shows large issuers are much more likely to serve subprime consumers, as well as offer reward products than small issuers.

As CBA initially expected, the CFPB’s data also shows large issuers are more likely than small issuers to offer products with subprime credit scores.

Once credit unions are removed from the CFPB’s data set, only 13 small issuers (24 percent) reported products with specific APRs for consumers with lower credit scores – less than a quarter of the small issuer market. In contrast, 68 percent of large credit card issuers reported products with specific APRs for consumers with lower credit scores.

These differences were similarly pronounced when looking at the geographic differences that small and large issuers report serving. According to the CFPB’s data, less than half of small issuer credit card products were available nationally. Yet nearly 80 percent of large issuer products were available across the country.

Beyond the greater likelihood of large issuers serving consumers with lower credit scores, the CFPB’s data confirms large issuers are more likely to offer products with rewards and other perks. Among the top 25 issuers in the CFPB’s dataset, 83 percent of the products offered carried rewards perks. For small issuers who were not credit unions, only 65 percent of their products offered rewards. As CBA explained when the CFPB first issued its Data Point:

“Many large bank card issuers compete for customers with increasingly tailored reward programs, like bonuses for popular spending categories like groceries or eating out. Further, many large bank card issuers offer new customer benefits like creating premium airport lounges; offering travel credits; and early access to popular reservations and concerts.

Many of the co-branded credit cards that the CFPB vilifies have reward rates as high as five percent, member-only discounts, and access to signature events that are special for that particular customer segment, as tailored as free monogramming; as pragmatic as priority boarding and free checked bags; or as adventurous as game hunting trips in Canada or fishing trips in Costa Rica.”

As the CFPB continues to release credit card reports, blogs, and statements in advance of releasing its credit card late fee rule, CBA will continue to monitor the CFPB’s data analyses. This is particularly important because the CFPB’s own economists project that the rule could increase APRs by as much as two percent.

CBA Advocacy

  • For the last several weeks, CBA has published a series of reports highlighting how the CFPB regularly and increasingly misrepresents its own data regarding the credit card market.
  • The CFPB frequently misrepresents the state of competition in the credit card market.
  • The CFPB asserted that credit card late fees are rising, whereas its own data shows that late fees have not meaningfully increased as a proportion of credit card balances for the last several years (and annual fees have actually declined substantially for consumers with low credit scores).
  • The CFPB claimed that consumers are increasingly falling behind on their credit card payments, whereas its own data shows the opposite. More consumers are paying off their balances each month. And revolvers are paying down far higher shares of their credit card balances than in prior years.
  • The CFPB flatly misrepresented the share of credit cardholders with subprime credit scores in its recent blog post about rising credit card interest rates.
  • And now, the CFPB improperly included data about credit unions in its analysis, in order to game its numbers on APRs between big and small credit card issuers.