Point of Impact: The Power of Credit Cards
Happy Monday—and welcome to the first of a quarterly update you’ll receive from me. Each edition will share insights from our team, perspectives on the future of retail banking, and updates on key issues shaping the industry. I’d love to hear from you anytime—it’s an incredible and exciting time to be in retail banking!
From Household Spending to GDP: The Power of Credit Cards
The U.S. economy continues to show surprising resilience despite persistent headwinds, supported by consistent (though top-heavy) consumer spending and stable consumer debt performance. Meanwhile, inflation remains persistent and the labor market is flat - showing little to no growth over the past quarter. While these macro-level economic indicators are encouraging, a closer examination of the data illustrates a more nuanced picture of the state of the American consumer.
A “K-shaped economy” is emerging: Bank of America Institute data shows sharp splits in wage and spending growth, with higher-income households seeing meaningful gains while lower-income households remain flat. And although annual incomes appear stable, JPMorganChase Institute research finds that workers’ earnings fluctuate significantly month to month, leaving many households vulnerable to unexpected expenses.
Yet through these highs and lows, one constant stands out: credit cards have been the backbone of consumer resilience. In the decade before COVID, card spending steadily grew. During the pandemic recovery, it helped accelerate growth—driving one of the fastest post-pandemic recoveries in modern history. And today, as CBA’s recent Data Desk analysis shows, credit card spending accounts for more than one-fifth of U.S. GDP. While balances have reached a record $1.2 trillion, that growth largely reflects expanded access to credit, especially for consumers at the margin, with evidence that most are managing their debts responsibly.
"For a recent graduate with no credit history, a single mom rebuilding after a financial setback, or a factory worker without a traditional banking footprint, a credit card is often the only on-ramp to opportunity."
Credit cards continue to serve as a stabilizer—providing breathing room for unexpected expenses, bridging income gaps, supporting small businesses and keeping Main Street moving through economic uncertainty.
In other words: credit cards are not a luxury for the wealthy—they are a critical part of how millions of Americans navigate financial ups and downs and an essential driver of the country’s economic engine.
Credit Cards Take Center Stage
Credit cards have increasingly become a political target for policymakers across the ideological spectrum, proposals from capping rates, restricting rewards programs, and imposing new routing mandates, all in the name of “helping” consumers, risk dismantling a system that plays a vital role in empowering working Americans And as credit card APRs have climbed in the last couple of years, these proponents have renewed their calls.
But the fact is: credit card APRs rose because everything else did too.
The Real Story Behind Rising Rates
Credit card rates have increased to historic highs. Recent research from former Federal Reserve economist Paul Calem (October 2025) shows that the average rate rose 6.6 percentage points between early 2022 and early 2024, reaching a record 23.7 percent. Though it may seem that rising APRs must mean worsening financial health, the data tells a more encouraging story.
CBA’s Q32025 Chart Book shows that consumer credit card performance remains remarkably strong. Delinquencies have stabilized or improved. Payment rates remain healthy. Balance growth is moderating rather than accelerating.
While the APR rose between 2022 and 2024, at the same time the Federal Reserve raised interest rates at the fastest pace in 40 years. Much of this was to counter inflation that raised the cost of nearly every good and service. Fraud and scam attempts also increased dramatically, and consumer risk grew—particularly among subprime and near subprime borrowers—as pandemic stimulus cash was spent down, which led issuers to adjust risk-based pricing. As Calem’s analysis finds, broad economic forces—not opportunism—explain the increase in APRs.
In short, interest rates climbed because the underlying cost and risk of credit did.
To understand this more fully, it’s essential to understand the factors that comprise an APR. As CBA’s recent analysis demonstrates, an APR, like cake— has layers. It’s not a single profit number, but a composite of multiple cost components including:
- Base funding cost: the interest rate environment set by the Fed.
- Credit risk cost: the probability that borrowers will default.
- Operational and compliance costs: necessary infrastructure, customer service, fraud prevention, and regulatory compliance.
- Capital cost: the regulatory requirement to hold capital against unsecured lending.
When the cost of each layer rises, the overall APR rises. This is not corporate greed—it is prudent risk management. Understanding that breakdown matters because efforts to artificially cap or compress rates, however well-intentioned, can have serious consequences, particularly by cutting off access to regulated credit for consumers who are on the margins of credit access.
Setting Aside Cakes, the Proof is in the Pudding: Credit Cards Help, Not Harm, Everyday Americans
A misconception in today’s credit card debate is that cards mainly benefit higher-income Americans, while lower-income consumers get stuck with fees that subsidize everyone else’s rewards—a “reverse Robinhood” storyline that has been used to push for government price caps. But that narrative fundamentally misunderstands, or ignores, how the market actually works.
Credit cards, including retail cards, are often the only safe, well-regulated form of credit available to people with little or no credit scores. Banks are uniquely positioned and willing to serve these customers, doing so in a safe and well-regulated system.
The 2017 CFPB Becoming Credit Visible report underscores that credit cards are often the first step for consumers to access regulated credit. For a recent graduate with no credit history, a single mom rebuilding after a financial setback, or a factory worker without a traditional banking footprint, a credit card is often the only on-ramp to opportunity. Serving deep subprime consumers necessarily involves higher interest rates to account for greater default risk and to meet banks’ safety and soundness requirements. Even so, credit card issuers have actively reduced the share of subprime and deep subprime customers who pay annual fees by more than half over the same period.
CBA consistently demonstrates how flawed the “reverse Robin Hood” theory by credit card critics is including through analysis we released on a Federal Reserve working paper examining rewards cards, noting that the differences in net rewards among consumers is not the result of rewards programs “taking from the poor and giving to the rich,” but instead a result of credit scores and risk-based pricing.
Further, research suggests that cards may actually spread benefits across incomes, while the costs tend to land more on higher-income cardholders.
The Power of Choice and Competition
The fact is that U.S. consumers benefit from a highly-regulated, and highly-competitive credit card marketplace where over 4,000 issuers across four major networks offer a wide range of unique products and fiercely compete for consumers’ business. Card issuers compete on a number of different dimensions, from their ability to underwrite consumers, rewards offered, interest rates, fees, and broader benefits like airline lounges and a host of product innovations.
And the competition doesn’t end when a consumer signs up for a card. Issuers must continually invest in service, technology, rewards and pricing to be “top-of-wallet” for the consumer. The sheer volume of balance transfers—more than $53 billion in 2022 alone—shows how easily consumers can switch providers if they find a better deal. To put this in perspective, that amount equals the total customer base of the seventh-largest credit card issuer—illustrating the significant power consumers have to shop, compare, and switch providers.
A Driver of Economic Resilience and Growth
Credit cards don’t just help consumers manage daily costs; they helped fuel one of the fastest post-recession recoveries in modern history. In that sense, cards aren’t merely a consumer convenience—they’re a key part of America’s economic engine and resilience.
"Credit cards don’t just help consumers manage daily costs; they helped fuel one of the fastest post-recession recoveries in modern history."
Millions of Americans rely on credit cards to manage everyday expenses, handle emergencies, and build credit histories that unlock financial opportunity. At the same time, local businesses depend on credit card spending to keep their doors open, invest in growth, and create jobs that strengthen communities. Every swipe fuels not just the national economy, but the neighborhoods, shops, and small businesses that define the heart of America.
A strong, resilient credit card market isn’t just good for consumers, it’s essential for Main Street.
Thanks,
Lindsey Johnson
President & CEO
Consumer Bankers Association