On October 2, the CFPB released its first review of the consumer credit card market. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act) requires the CFPB to prepare a report every two years to examine developments in the consumer credit card marketplace, including (i) the terms of credit card agreements and the practices of issuers, (ii) the effectiveness of disclosures, and (iii) the adequacy of UDAP protections. The CFPB also must review the impact of the CARD Act on (i) the cost and availability of credit, (ii) the safety and soundness of issuers, (iii) the use of risk-based pricing, and (iv) product innovation. In connection with this initial report, the CFPB hosted a credit card field hearing in Chicago, IL, at which Director Cordray reviewed the report’s findings and industry representatives and consumer advocates discussed the current state of the credit card market.
In its review of the post-CARD Act market, the CFPB found that the CARD Act largely accomplished its intended goals. The CFPB reports that: (i) the total cost of credit declined by two percentage points between 2008 and 2012; (ii) overlimit fees and repricing actions have been effectively eliminated; (iii) the size of late fees has decreased; (iv) there is sufficient available credit, notwithstanding the impacts of the financial crisis, but less than in 2007; and (iv) the CARD Act’s ability-to-repay provisions have protected young consumers.
However, the CFPB identifies numerous concerns it has about the credit card market, including “practices that may pose risks to consumers and may warrant further scrutiny by the Bureau.” Those concerns include:
- Add-on products: The CFPB remains concerned about the ways these products are marketed and will continue to pursue allegedly deceptive practices. All of the CFPB’s major enforcement actions to date have involved add-on products, most of which related to credit cards.
- “Fee harvester” cards: The CFPB recognizes that some upfront fees that exceed 25% of the initial credit limit have been held not to be covered by the CARD Act because a portion of the fees are paid prior to account opening. Still, the CFPB plans to monitor the use of application fees in connection with account openings to determine if it should take action under its available authorities.
- Deferred interest products: The CFPB intends to study the risks and benefits of private label cards that finance purchases without interest for a period of time but then assess interest retroactively if the balance is not paid in full by a given date.
- Online disclosures: The CFPB intends to assess the methods by which card issuers provide consumers with disclosures when they access their accounts online.
- Rewards products disclosures: The CFPB will review whether disclosures for “highly complex” rewards products are being made in a clear and transparent manner and whether “additional action” is warranted.
- Grace period disclosures: The CFPB believes it may need to take action to ensure that disclosures sufficiently inform consumers that once they carry a credit card balance into a new billing cycle, they no longer enjoy the grace period on new purchases.