Nearly 50% of Americans Unaware Federal Interest Rate Hikes Raised Their Credit Card APR by Over 5 Percentage Points

Rhea-AI Summary

LendingClub (NYSE: LC) has released new data revealing a significant lack of consumer awareness about credit card debt costs in the current high interest rate environment. Key findings from their national survey include:

- 47.1% of Americans are unaware of their current credit card APR
- 49.5% don't know their credit card APR rose by over 5 percentage points due to Federal rate increases
- 23.6% don't know their total credit card debt
- 34.4% don't recognize that credit card APRs can fluctuate over time

The survey highlights a concerning trend of financial illiteracy, with many consumers unaware of the impact of rising interest rates on their debt. LendingClub emphasizes the need for clearer communication from credit card companies and aims to empower consumers with knowledge to make informed financial decisions.

Positive

• LendingClub has facilitated over $90 billion in loans to more than 4.9 million members since 2007
• LendingClub members who consolidate credit card debt typically save approximately $2,054 on average over a 36-month personal loan term

Negative

• Credit card balances reached a record high of $1.14 trillion
• Average credit card interest rates hit a record 22.76% in May 2024
• 44.7% of Americans increased their credit card spending over the past two years despite rising interest rates

Financial Analyst

The survey results reveal a concerning trend in consumer financial literacy, particularly regarding credit card debt. With 47.1% of Americans unaware of their current credit card APR and 49.5% oblivious to the 5% increase due to Federal rate hikes, there's a clear knowledge gap. This lack of awareness could lead to increased financial strain for consumers, potentially impacting their ability to manage debt effectively.

From an investor perspective, this situation presents both risks and opportunities for companies in the financial sector. Banks and credit card issuers may benefit in the short term from higher interest income, but there's a long-term risk of increased defaults if consumers struggle with rising debt burdens. Companies offering debt consolidation services, like LendingClub, could see increased demand as consumers seek ways to manage their debt more effectively.

The $1.14 trillion credit card balance and record-high 22.76% average interest rates highlight the scale of this issue. Investors should closely monitor consumer debt levels and default rates, as they could be leading indicators of broader economic health and consumer spending trends.

Consumer Behavior Analyst

The survey unveils a critical disconnect between consumer behavior and financial awareness. With over a third of Americans relying on credit cards for basic financial management and 23.6% unaware of their total credit card debt, we're seeing a potentially dangerous trend. This lack of awareness, coupled with rising interest rates, could lead to a debt spiral for many consumers.

Interestingly, the data shows a dichotomy in credit card usage: while many use cards for convenience and rewards, a significant portion is using them to make ends meet. This latter group is particularly vulnerable in the current high-interest environment. The fact that 44.7% of Americans increased their credit card spending over the past two years, despite record-high interest rates, suggests a potential misalignment between consumer behavior and financial reality.

For businesses and investors, this trend could signal shifts in consumer spending patterns and credit risk profiles. Companies may need to reassess their customer segmentation and risk models, while also considering how to educate and support customers in managing their finances more effectively.

Regulatory Affairs Expert

The survey findings highlight a significant gap in consumer protection regulations within the credit card industry. The fact that credit card companies are not required to proactively notify consumers of rate changes beyond including the information in statements is a regulatory oversight that needs addressing. This lack of transparency contributes to the widespread consumer ignorance about their actual debt costs.

From a regulatory perspective, there's a clear need for more stringent disclosure requirements. Policymakers might consider mandating more frequent and prominent APR notifications, especially following Federal rate changes. Additionally, the high percentage of consumers unaware of balance transfer fees (39.5%) and interest calculation methods (28.3%) suggests a need for improved financial education initiatives.

For investors, potential regulatory changes in this area could impact the profitability of credit card issuers and banks. However, it could also create opportunities for fintech companies that prioritize transparency and consumer education. Keeping an eye on potential regulatory shifts in consumer financial protection will be important for assessing the long-term prospects of companies in this sector.

SAN FRANCISCO, Aug. 13, 2024 /PRNewswire/ -- LendingClub Corporation (NYSE: LC), the parent company of LendingClub Bank, America's leading digital marketplace bank, has released new data revealing a surprising lack of consumer awareness regarding the true cost of their credit card debt in today's high interest rate environment. LendingClub conducted a national survey of 1,013 consumers from May 13 to May 21 to understand the trends and opinions on credit card usage and debt management.

APR Confusion and the Knowledge Gap
LendingClub's recent research on personal finance trends exposes a significant gap in Americans' financial literacy. Almost half (47.1%) of Americans are unaware of the current APR on their credit cards. Of the 52.9% who say they do know their APR, a third didn't know that their rate is directly tied to the Prime rate, which fluctuates with Federal Reserve interest rates. In fact, nearly half of all Americans (49.5%) are unaware that their credit card APR automatically rose by over 5 percentage points following Federal rate increases between March 2022 and July 2023. This highlights a lack of consumer awareness about the pace of credit card rate changes, a fundamental misunderstanding of how rates are calculated, and an inability of consumers to easily find and track their current rate.

"Credit card balances reached its highest level in history at $1.14 trillion¹, with average interest rates of 22.76%² being the highest we've ever seen," said Mark Elliot, Chief Customer Officer at LendingClub. "Unfortunately, many consumers are unaware of these rising costs, and credit card companies are happy to keep it that way. This lack of transparency makes it even more challenging for consumers to manage their finances and get out of debt."

Growing Debt Levels
Over a third of Americans couldn't manage their finances without a credit card. Despite rising debt levels, many consumers lack a clear understanding of their financial obligations. Nearly a quarter (23.6%) of respondents admit they don't know their total credit card debt. And, while most consumers use their credit cards for convenience or rewards (and pay off their balance each month), a sizeable portion of the population is using their cards to make ends meet amid rising costs. This cohort is more concerning because they are loading debt at — unbeknownst to many of them — historically high floating interest rates.

Over the past two years, credit card rates have increased by 500 basis points, reaching a record of 22.76% on average in May 2024, according to the Federal Reserve. Over that same timeframe, 44.7% of Americans increased their spend on credit cards. Yet, 34.4% of people don't recognize that credit card APRs can fluctuate over time, independent of payment history or credit status.

This lack of awareness is not surprising, given that credit card companies are not required to proactively notify consumers of rate changes beyond including the information in statements. As a result, over a quarter of Americans (26.5%) say they don't know where to find their interest rate, 26.4% didn't know their rates increase after a promotional period ends, 28.3% don't understand how interest is calculated, and 39.5% are unaware of balance transfer fees.

"The need for clearer communication from credit card companies is more pressing than ever," continued Elliot. "By empowering consumers with knowledge, we can help them understand their debt burden so they can make more informed financial decisions and develop debt management strategies, especially in a high interest rate environment. Debt itself isn't inherently bad; in fact, we know from our own research that many are comfortable with – and even empowered by – carrying debt. The real issue is that credit cards are designed to do better when the cardholder does worse. Frankly, the deck is stacked against consumers. One way we're working to level the playing field for our members is by simply raising awareness about the debt they're carrying and the true cost of that debt – a small but important first step toward helping them avoid pitfalls."

Since 2007, LendingClub has facilitated over $90 billion in loans to more than 4.9 million members. Members frequently consolidate variable high interest rate credit card debt into a fixed lower rate loan, providing a clear path to paying off that debt. Our borrowers who consolidate their credit card debt typically save on fees and interest, which is supported by our data that indicates that our members save approximately $2,054 on average over the term of a 36-month personal loan from LendingClub³. For more information on personal loans as a debt management tool, visit: https://www.lendingclub.com/personal-loan/credit-card-consolidation-loan.

For a visual summary of these findings, view the accompanying infographic here: https://assets.ctfassets.net/orqped9h4wgz/5CdNGQKoYdQ9EmyEE0BJXb/f7614c3f2380726b79fdc1416baf0943/LendingClubDebtSurveyInfographic_Aug2024.pdf.

Methodology
Propeller Insights conducted a national online survey of 1,013 consumers from May 13 to May 21 to understand the trends and Americans' opinions on credit card usage and debt management. Respondents opted into an online database, and from there, they were targeted based on demographics. To further confirm qualifications, respondents were asked to verify their information in the survey itself. Self-identifying qualifications with the maximum margin of sampling error was +/- 3 percentage points, with a 95% level of confidence.

About LendingClub
LendingClub Corporation (NYSE: LC) is the parent company of LendingClub Bank, National Association, Member FDIC. LendingClub Bank is the leading digital marketplace bank in the U.S., where members can access a broad range of financial products and services designed to help them pay less when borrowing and earn more when saving. Based on more than 150 billion cells of data and over $90 billion in loans, our advanced credit decisioning and machine-learning models are used across the customer lifecycle to expand seamless access to credit for our members, while generating compelling risk-adjusted returns for our loan investors. Since 2007, more than 4.9 million members have joined the Club to help reach their financial goals. For more information about LendingClub, visit https://www.lendingclub.com. 

CONTACT:
For Investors: IR@lendingclub.com
Media Contact: Press@lendingclub.com 

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¹ The Federal Reserve Bank of New York, August 2024. Household Debt and Credit Report (Q2 2024). Retrieved from https://www.newyorkfed.org/microeconomics/hhdc
² The Federal Reserve, May 2024. Retrieved from https://www.federalreserve.gov/releases/g19/current/
³ Reflects the product of: (i) the average dollar value of a LendingClub balance transfer personal loan originated in Q2 2024 (a "Q2 2024 LC Loan") and (ii) the difference between the average APR on credit card debt as reported on WalletHub and the average APR for a Q2 2024 LC Loan.

 

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SOURCE LendingClub Corporation

FAQ

What percentage of Americans are unaware of their current credit card APR, according to LendingClub's survey?

According to LendingClub's survey, 47.1% of Americans are unaware of their current credit card APR.

How much have credit card rates increased over the past two years, as reported by LendingClub (LC)?

LendingClub (LC) reports that credit card rates have increased by 500 basis points over the past two years, reaching a record average of 22.76% in May 2024.

What percentage of Americans don't know their total credit card debt, according to LendingClub's research?

LendingClub's research shows that 23.6% of Americans admit they don't know their total credit card debt.

How much do LendingClub (LC) members typically save when consolidating credit card debt with a personal loan?

LendingClub (LC) reports that their members typically save approximately $2,054 on average over the term of a 36-month personal loan when consolidating credit card debt.