Published: August 2007

The Shifting Cost of Credit

A new report reveals who bears the cost of credit card deregulation

African Americans, Latinos, low income people and single parents pay a disproportionate amount of excessive credit card fees and interest rates, according to a new study released by the research center Demos. The report details how missing a credit card payment - by even one hour - can send the cardholder's interest rate sky high. Cardholders who purchase goods with one set of conditions, say a 16% APR, can pay them back on another, with rates "as high as 40%." "Someone has to bear the cost of all these credit card promotions, and they are often the families who are already in dire financial straights," said Tamara Draut, report co-author and director of Demos' Economic Opportunity Program. Key findings include:

• One third (33%) of cardholders have interest rates of more than 20%
• Cardholders with rates of over 20% range from 21% to 41% APR
• 31% of cardholders have a 0% or low introductory interest rate
• 36% of cardholders have a "regular" interest rate
• Lower income cardholders who carry a balance are twice as likely to pay penalty rates as higher income consumers
• African American and Latino cardholders are about twice as likely as white cardholders to have an APR of over 20%

The Demos report concludes that one of the reasons that lower income consumers are bearing the cost of higher interest rates may be because of paying credit card bills late. Dr. Jing Xiao, study researcher, said lower income people "are not (financially) prepared for an emergency. Even if you are late on one payment you can be repriced." Demos recommends giving cardholders up to five days past the due date before penalizing them.

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Credit Cards   ♦