The average American can save more than $400 a year in interest charges by switching to a smaller credit card provider, according to the Consumer Financial Protection Bureau (CFPB).

In a new report, the CFPB analyzed the APR of more than 150 credit card issuers in the first half of 2023. The financial watchdog found that the largest lenders charged an APR that was 8 to 10 percentage points higher than that of smaller credit card issuers.

Larger issuers charged an average APR of between 22.99% and 28.49%, depending on the customer’s credit score. By comparison, smaller institutions charged between 15.24% and 20.62%.

That means the typical American owing more than $5,000 in credit card debt could save between $400 and $500 a year if they switched to a smaller bank or credit union card.

“This difference likely translates to billions of dollars in additional interest revenue for the country’s largest credit card issuers,” the CFPB said.

CFPB director Rohit Chopra told CNBC that many Americans “would be better off with newer entrants or smaller players in the market.”

“For the average household, switching can actually save them hundreds and hundreds of dollars over the course of the year,” he said.

Rates on consumer credit have shot up since early 2022 when the Fed began raising interest rates to combat inflation. According to data from the St. Louis Fed, average credit card interest rates have risen from 14.56% in February 2022 to 21.47% as of November 2023.

The shocking part is that higher rates haven’t deterred Americans from using their credit cards.

Some economists say this reflects a strong economy, but a deeper dive into the data reveals a more troubling reality for the American consumer.

Falling deeper into debt just to make ends meet

High rates are supposed to deter consumers from taking on debt, but in post-pandemic America, the complete opposite has occurred.

According to New York Fed data, high-interest credit cards added another $50 billion to Americans’ debt load in the fourth quarter of 2023, bringing their total credit card debt to a record-breaking $1.13 trillion.

Revolving credit balances have increased by a whopping 24% since the Fed began raising rates.

Rising credit card debt “signals increased financial stress, especially among younger and lower-income households,” said Wilbert van der Klaauw, an economic research adviser with the New York Fed.

As it turns out, more Americans are using their cards to pay for essential living expenses like food and rent as inflation continues to bite.

“Americans are still struggling with lingering inflation and rising interest, forcing them to lean on credit cards more and more,” said Matt Schulz, chief credit analyst at LendingTree.

A recent study from PYMNTS and LendingClub found a strong correlation between credit card usage and living paycheck to paycheck.

According to the study, 62% of consumers relied on their next paycheck to cover monthly expenses. Incidentally, these consumers also owed nearly 60% of the country’s credit cards.

High rates have also undercut Americans’ ability to pay down their existing balances.

The CFPB reported last year that about one in ten credit card users are in “persistent debt,” meaning more money goes toward interest and fees than paying down their credit balances.

One of the ways the CFPB is trying to curb banks is by regulating so-called "junk fees" charged by banks.

Targeting junk fees

One of the ways the CFPB is trying to curb banks is by regulating so-called "junk fees" charged by banks.

Last month, the financial watchdog proposed new rules to block banks from creating new sources of junk fee revenue. While not limited to credit cards, the rules are meant to address all the “fake services that cost almost nothing to deliver,” Chopra said.

“Banks should be competing to provide better products at lower costs, not innovating to impose extra fees for no value,” he explained.

Lower junk fees can help borrowers save money, but it probably won’t be enough to bring them back to financial health. As the recent CFPB study noted, there are 15 credit card issuers charging a predatory 30% interest on their credit cards.

The study also found that Americans paid a record $130 billion in interest and fees in 2022—a figure that’s expected to rise as credit card balances continue to mount.