Americans paid 14% more for financial services last year due to higher lending rates, more borrowing and, to a lesser extent, higher deposit account fees, new research shows.
Consumers will spend $347 billion in interest and fees in 2022, up from $304 billion the previous year a report From the Financial Health Network, a nonprofit dedicated to improving the financial wellbeing of Americans.
Spending on credit and loan products, which excludes mortgages not covered in the report, rose 15%.
“All told, this paints a picture of debt that could really start to strain the checkbooks of American households,” said Megan Green, senior director of policy and research at the Financial Health Network. increase, which gives us a worrying sense of the scale of debt people are carrying.”
Signs of weakness in consumer credit persist into 2023.Credit card and auto loan delinquencies Has reached or exceeded pre-pandemic levels in recent months — suggesting that Americans are losing the financial buffer they have enjoyed over the past few years. The return of credit quality to pre-pandemic levels also suggests that consumers are paying down debt at a more typical pace than the fast rates that were maintained until recently.
Beginning in 2020 and continuing through most of 2022, consumer credit quality remains strong thanks to pandemic-era measures to help customers make timely loan payments, including relaxed repayment terms and government stimulus payments.
But the Financial Health Network’s report highlights factors currently straining consumers’ wallets. Total credit card fees and interest rose 20% last year from 2021 to $113.1 billion, the report said.
Rising interest rates accounted for about a quarter of the increase, while rising credit card balances accounted for the rest, according to estimates by the report’s authors.
The findings are consistent with other recent data showing that consumers load their credit card Growth at the fastest year-over-year rate on record. Credit card balances totaled $1 trillion at the end of March, up 17% from a year earlier, according to the New York Fed.
The U.S. personal savings rate, which has soared during the pandemic and fell to record lows last year, has risen only slightly so far this year.
The Financial Health Network found that consumers who financed the purchase of a used car paid about 18% more in interest and fees last year, while those who borrowed money to buy a new car saw a 7% increase in overall costs.
Of the 13 credit products, 11 saw total increases in fees and interest in 2022, the report said. Spending on unsecured installment loans and pawn loans rose 25%.
The Fed hikes rates seven times in 2022, ending the year in a range of 4.25% to 4.5%. Interest rates rose faster than expected, surprising businesses and consumers alike, leading to higher rates on products ranging from credit cards to student loans.
U.S. consumers also spent 4 percent more on services related to transactions and deposits last year, according to the Financial Health Network report. The biggest increases were in account maintenance fees (up 16%) and international remittance fees (up 10%).
While fees related to overdrafts, one of the industry’s most lucrative fee categories historically, fell, spending related to transactions and deposits rose.
Revenue from overdraft and insufficient funds fees fell 6% to $9.9 billion, down from $10.6 billion in 2021 and an estimated $15.5 billion before the COVID-19 pandemic.multiple large banks Make their overdraft policy more consumer friendly Last year, it faced regulatory pressure and competition from new banks.
But the decline in overdraft revenue has been uneven across the industry.
Banks with at least $1 billion in assets reported a 13 percent decline in revenue from overdraft and insufficient funds charges, according to a Financial Health Network analysis of call reports. Meanwhile, overdraft revenues for banks with less than $1 billion in assets will increase slightly in 2021-2022.
The costs and logistical challenges associated with overhauling the system for enforcing overdraft policies have deterred many smaller banks from doing so, said Hank Israel, managing director of behavioral insights at financial services consultancy Curinos. He also pointed to rising interest rates putting pressure on bank margins as a possible factor preventing smaller banks from lowering overdraft fees.
“They don’t have the same ability to manage deposit pricing as rates go up, so they’re being squeezed a bit as they try to meet that challenge,” Israel said.
While overdraft fees may be smaller and charged less frequently, the share of households paying overdraft fees last year was the same as in 2021, 17%, the report said.
Banks are still tweaking overdraft policies. Regions Financial, which was fined by regulators last year for overdraft violations, said last week it would Give customers an extra day to avoid overdraft fees.