If you look at what borrowers actually paid using the CFPB’s Total Cost of Credit framework, rising credit card costs are driven almost entirely by Federal Reserve policy rates. The rest is, somewhat paradoxically, explained by consumers managing credit better than before. 

Credit card annual percentage rates (APRs) climbed from 17.6 percent to 24.9 percent over the last decade. That number gets cited constantly as evidence that something is wrong with the credit card market. 

But rising APRs were actually the intended outcome of landmark legislative reforms to the credit card market in 2009. Congress deliberately pushed more credit card costs into upfront sticker prices that consumers could compare and shop around.

When Congress asked the Consumer Financial Protection Bureau (CFPB) to examine the impact of these changes on the cost of credit, the CFPB looked at the data and delivered a clarifying verdict: APRs had risen, but that was expected; what mattered was that the Total Cost of Credit (TCC), a measure that captures what consumers actually pay in interest and fees relative to their balances, had gone down. 

New research by Dr. Alexei Alexandrov applies that same lens to the period between 2015 and 2024. His findings cut against the popular (and Populist) narrative in three ways. 

1. Most of the increase in borrowing costs over that period traces directly to Federal Reserve rate hikes, not to credit card issuers quietly padding their profit margins. 
2. A counterintuitive wrinkle in how TCC is calculated means that consumers paying down balances more aggressively (a sign of financial health) can make the metric appear to rise even when nothing bad is happening. 
3. The growing prevalence of rewards-focused annual fees among Superprime consumers has changed what annual fees actually represent, in ways that may cause TCC to overstate borrowing costs compared to when the metric was first developed.

Taken together, the data does not support the narrative that credit card issuers drove borrowing costs higher beyond the Fed's rate hikes.

Key Findings

1. When Congress asked what happened to the cost of credit after the CARD Act, the CFPB's answer in 2013 was unambiguous: APRs rose, but Total Cost of Credit — what consumers actually paid — fell. 
2. TCC grew more slowly over the last decade than average APRs.
3. Because most variable-rate credit cards are indexed to the Prime rate, Federal Reserve policy rate increases explain much of the growth in credit card borrowing costs between 2015 and 2024.
4. Higher payment rates mechanically increase TCC as consumers pay down balances more aggressively — meaning the metric can rise even as consumers are in better financial shape. 
5. The growing prevalence of rewards-focused annual fees among Superprime consumers may cause TCC to overstate borrowing costs, since those fees were originally designed to measure access-to-credit costs for Subprime borrowers — not travel perks for people who pay in full every month.

A quick history lesson: Why Total Cost of Credit is the yardstick after the CARD Act

As noted previously, the movement of pricing more upfront and into APRs over the last 15years reflects a direct and intended set of structural changes required by Congress with the passage of the 2009 CARD Act. The legislation reshaped the credit card market, by encouraging credit card issuers to move costs to a transparent “front-end” pricing structure, centered on easily comparable ”sticker prices:” APRs and a few major fees, like annual and late fees. 

The CFPB noted in its first report to Congress on the cost of credit, the CARD Act Report in 2013:  

“Consistent with the shift towards more transparency as a result of upfront pricing, we find that, beginning in early 2009 and continuing through 2010, when many provisions of the Act went into effect, the interest rate on credit card accounts increased, while back-end fees decreased or were eliminated.”

Yet the CFPB made clear that the “total cost of credit – i.e. the annualized sum of all amounts paid by consumers (including both interest charges and fees) divided by the average of outstanding balances – declined […] from Q4 2008 to Q42012.”

Indeed, in subsequent CARD Act Reports, the CFPB continued to emphasize two distinctions between APRs and the Total Cost of Credit:

1. Unlike APRs, which only reflect stated interest rates across active accounts, Total Cost of Credit incorporates the interest and fees actually paid relative to average daily balances;
2. Because many cardholders pay their balances in full each month and never incur interest charges or late fees, APR’s sticker prices and Total Cost of Credit’s actual costs can diverge meaningfully over time as consumer behavior and pricing structures change.

What causes higher borrowing costs? Look to the Fed’s Rate Hikes.

Dr. Alexandrov’s research shows that much of the increase in credit card borrowing costs between 2015 and 2024 was driven by changes in the Federal Funds Rate, which influences the Prime rate that most credit cards are indexed to. 

As Figure 1 shows, both APRs’ sticker prices and Total Cost of Credit’s actual costs have largely moved alongside the Prime rate since 2015. The Federal Reserve increased the Fed Funds rate 11 times between 2022 and 2024, from near 0.0 percent in 2022 to 5.5 percent in 2023.  

Figure 1. APR, Total Cost of Credit, and the Prime Rate over Time

Paying off your balance faster looks weird in this metric. Here's why that's good news.

Critics of credit cards argue that credit card interest rate margins are growing (i.e., that credit card issuers are padding profits by increasing the difference between APRs and the Prime rate). 

Figure 2, below, explores whether that’s the case, but using the Total Cost of Credit measure, since it reflects what consumers are actually paying. In that regard, the Figure shows:

• How APRs have grown in comparison to the prime rate over time (i.e., the difference between the solid and dashed yellow lines); and 
• How the Total Cost of Credit has changed in comparison to the prime rate over the same time period (i.e., the difference between the solid and dashed blue lines). 

Notably, while Figure 2 shows that the APR spread grows, the TCC spread also seems to grow and shrink over time. In particular, during the 2020-2022 pandemic years set out in the grey rectangle, the TCC spread (the difference between the solid and dashed blue lines) really seems to grow. 

Dr. Alexandrov’s paper asks: Does this mean that credit card issuers were raising prices on consumers during the pandemic? 

Figure 2: Change in APR and Total Cost of Credit

Here's the counterintuitive part: Unlike APR, under Total Cost of Credit, consumers who carry a balance from month to month can actually appear to face lower borrowing costs than consumers who pay most of it off. That's because TCC measures the interest you actually pay. So, if you're rolling a large balance forward and barely touching the principal, you're paying a little interest on a big amount that you owe. In contrast, if you pay it down aggressively, that same interest charge looks much larger as a share of a smaller balance.

So when repayment rates rose sharply after the pandemic — and the data show they did — Total Cost of Credit mechanically ticked up even as consumers were in better financial shape. The metric reflected their discipline, not their distress. (See Figure 3, which shows quarterly changes in TCC and repayment amounts, below.)

Figure 3. Total Cost of Credit and Repayment Rates During and After the Pandemic

Even after the pandemic, positive changes in repayment behavior appear to make Total Cost of Credit higher.  

First, from a compositional perspective, people are doing better managing their credit card debt than before the pandemic. As Figure 4, excerpted from the CFPB’s most recent CARD Act Report, shows:

• More consumers are paying balances in full each month (the lighter, green portion of the figure). 
• Fewer consumers are making very small payments relative to their balances (the bottom, dark green portion of the figure). 

Figure 4. Annual Share of Accounts by Payment Amount

Second, repayment rates among revolving borrowers also increased materially after the pandemic. As Figure 5 shows, general purpose credit card payment rates rose from roughly 27–32 percent before 2020 to nearly 37 percent in recent years.

That distinction matters because Total Cost of Credit measures the interest and fees consumers actually pay relative to their average daily balances. Similar to what we saw during the pandemic, a borrower who repays balances more aggressively may temporarily appear to face a higher borrowing cost under TCC because the same interest charges are measured against a smaller average balance over time. In other words, faster repayment behavior can mechanically increase TCC even as consumers pay down their debt more quickly.

Figure 5. Quarterly Payment Rates

Notably, these CFPB charts also help alleviate any concern that TCC numbers are “artificially” lower due to consumers racking up large amounts of unpaid interest on big balances owed. Per Figure 5, the share of accounts making very small payments — the group most likely to be stuck in a revolving debt cycle — has shrunk. 

Indeed, separate research from CBA shows that once indexed for inflation and normalized for an increased number of borrowers, the average balances held per consumer have remained remarkably steady over the last ten years. (See excerpt in Figure 6, below.)

 Figure 6. Adjusted Monthly Average Balances Per Cardholder

Who's actually paying annual fees now…And why it changes the math

So far, the data suggests that Total Cost of Credit’s focus on actual costs provides a more complete measure of realized borrowing costs than APR’s sticker price alone, particularly after the CARD Act reshaped credit card pricing. But the analysis also highlights that TCC itself can be influenced by changes in consumer behavior, including faster repayment rates during and after the pandemic.

Dr. Alexandrov’s research raises another important question: should annual fees still be treated as a borrowing cost within TCC in the same way they were when the metric was first developed?

That question matters because the role of annual fees — and the types of consumers paying them — has changed substantially over the last decade.

When the CFPB first introduced TCC in its 2013 CARD Act Report, annual fees were more commonly associated with consumers seeking access to credit, particularly borrowers with lower credit scores. In that context, including annual fees in Total Cost of Credit aligned with the CFPB’s effort to capture the full cost of borrowing.

Over the last decade, however, the role of annual fees has changed substantially. As Figure 7 shows, annual fees are now increasingly concentrated among Superprime consumers using rewards-focused credit cards rather than among Subprime borrowers seeking access to credit.

The CFPB itself has noted that “[c]ardholders with Superprime credit scores are most likely to pay annual fees, largely to access attractive rewards programs associated with cards marketed to this credit tier. In contrast, annual fees have become less prevalent for cardholders with below-prime scores.” 

And these Superprime consumers are most likely to be paying off their balances each month, meaning that they pay no interest charges. In other words, these Superprime cardholders’ fancy travel cards (increasingly hefty) annual fees are included in Total Cost of Credit calculations…even though the cardholders aren’t actually borrowing money month-to-month. 

Figure 7. Annual Fee Prevalence in General Purpose Cards

In other words, the Superprime cardholder paying $695 for a heavy metal travel card is buying lounge access and points, not credit. The sticker says “debt.” But the reality says “airline lounge access.”

As a result, annual fees may increasingly reflect the purchasing and rewards functions of credit cards rather than the borrowing function. Dr. Alexandrov’s research suggests this shift may mean that Total Cost of Credit may actually overstate borrowing costs over time — because TCC includes annual fees that borrowers generally aren’t paying — once you compare today’s market with the years immediately following the CARD Act.

Putting the pieces together: The Total Cost of Credit has remained relatively flat from 2014 to 2023

Figure 8, below, puts all of Dr. Alexandrov’s learnings together in one “grand unified theory:” When adjusting only for changes in the Prime rate, Total Cost of Credit increased much more modestly over the last decade. And when additionally accounting for the changing role of annual fees — from a borrowing-related charge to a rewards-related feature for many consumers — adjusted Total Cost of Credit (the dark blue line) remains comparatively stable over time. (And where it does increase, it could be increasing because of positive changes in consumer payment behavior.)

Figure 8. Once Annual Fees are Accounted For, the Spread between Total Cost of Credit and the Prime Rate is Essentially Flat

The Bottom Line

The distinction between APR’s sticker prices and Total Cost of Credit’s actual costs matters because the two measures answer different questions about the credit card market. APR reflects stated interest rates across active accounts, while Total Cost of Credit measures the interest and fees consumers actually pay relative to outstanding balances.

Taken together, the data point to a more nuanced picture of credit card borrowing costs after the CARD Act than APR trends alone suggest. 

Once you account for credit card borrowing costs, the total cost of credit for consumers has remained remarkably constant for over a decade – particularly as rewards-focused annual fees become increasingly concentrated among Superprime consumers. And the current measures may still overstate Total Cost of Credit, because they reflect payment rates that remain much higher than prior to the pandemic. 

That's not a small caveat — it's the whole story. When you strip out what the Federal Reserve did to rates, and account for the fact that a growing share of 'fees' are really just the price of a good rewards program, the spread attributable to card issuers barely moves. The drama in the headline number is mostly borrowed from monetary policy.

And to say it plainly: The data don't support the narrative that credit card issuers drove borrowing costs higher beyond the Fed's rate hikes.