While lower rates seem beneficial for leveraged companies, the context is critical. The Federal Reserve typically cuts rates in response to a weakening economy. This economic downturn usually harms issuer fundamentals more than the lower borrowing costs can help, making rate-cutting cycles a net negative for high-yield credit.

Contrary to the common perception of users paying off balances monthly ("transactors"), the majority—about 60%—are "revolvers" who carry debt. This group is the primary source of profit for card issuers, as they are subject to interest rates now averaging a staggering 23%.

The Fed kept interest rates higher for months due to economic uncertainty caused by Donald Trump's tariff policies. This directly increased borrowing costs for consumers on credit cards, car loans, and variable-rate mortgages, creating a tangible financial impact from political actions.

The same banks issuing high-interest credit cards offer substantially cheaper personal lines of credit to customers with identical FICO scores. Despite being a logical tool for consolidating expensive card debt, these products receive almost no marketing, making them largely invisible to consumers.

A common misconception is that Fed rate cuts lower all borrowing costs. However, aggressive short-term cuts can signal future inflation, causing the 10-year Treasury yield to rise. This increases long-term rates for mortgages and corporate debt, counteracting the intended economic stimulus.

While many assume high credit card rates cover default risk, actual charge-offs on revolving balances average only 5.75%. This is a significant cost but accounts for less than a third of the typical interest rate spread, indicating that other factors like risk premiums and operating costs are major drivers.

A surprisingly large portion of high credit card APRs covers operating expenses, particularly marketing. Issuers like Amex and Capital One spend billions annually on customer acquisition. This spending is passed directly to consumers, as higher marketing budgets correlate with higher chargeable rates.

Consumers are largely insensitive to the interest rates they are charged, rarely seeking out cheaper options like credit union cards. This behavioral pattern means that cutting rates is an ineffective customer acquisition strategy. Instead, issuers invest heavily in marketing, which proves more effective at attracting new borrowers.

Affirm's CEO argues the core flaw of credit cards is not high APRs, but a business model that profits from consumer mistakes. Lenders are incentivized by compounding interest and late fees, meaning they benefit when customers take longer to pay and stumble.