Why retail credit card interest rates are at an all-time high

The news: The average interest rate for retail credit cards (both private-label and co-brand cards) is 30.45%, an all-time high, per Bankrate.

• This is a sharp increase from 28.93% in 2023 and 26.72% in 2022.
• It’s also much higher than the average credit card APR, which has ranged from 20% to 22% since March 2023.

The rate on cards for Big Lots, Michaels, and Petco is as high as 35.66%.

Why this is happening: The highest interest rates are coming from private-label credit card programs.

• Private-label cards are often starter credit cards for consumers with thinner or nonexistent credit histories.
• And because these consumers often carry higher risk, issuers charge higher interest rates to protect themselves against potential defaults.

But the record-high rates—from private-label and co-brands alike—are still out of the norm. Retailers and the credit card issuers they partner with have attributed the increase to the current economic environment, elevated credit losses, and regulatory pressures, per CNBC. However, another big part of the increase likely has something to do with retailer’s profits.

• Card programs can make up a huge part of retailers’ revenues, bolstering their profits when sales slow.
• For example, Macy's credit card business accounted for 49% of its operating profits in 2022, up from 35% in 2021.

Our take: Credit card interest rates are expected to come down in 2025 thanks to the Federal Reserve’s rate cuts, but private-label cardholders may not see much of a decline due to other regulatory changes.

The CFPB issued a rule to cap late fees at $8, down from the typical $32. While the rule is currently held up in court, issuers are still preparing for it. And part of this will include keeping rates high to make up for the potential lost revenues.

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