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.”
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.”
Mark Elliot, Chief Customer Officer at LendingClub, said:
“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. 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.”
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.”
Elliot added:
“The need for clearer communication from credit card companies is more pressing than ever. 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.”
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.”
