Last week, the Consumer Financial Protection Bureau (CFPB) announced it is seeking public comment from consumers on how the credit card market is functioning following several initiatives imposed by the Credit Card Accountability Responsibility and Disclosure Act of 2009, H.R. 627 (CARD Act), which amended various provisions of the Truth in Lending Act, 15 U.S.C § 1601, et. seq. The passage of the CARD Act was intended to “establish fair and transparent practices related to the extension of credit” in the credit card market. The CARD Act requires credit card issuers to assess a consumer’s ability to pay prior to extending credit, limits the types of fees credit card companies could charge consumers and restricts certain marketing efforts.
Section 502(a) of the CARD Act requires the CFPB to conduct a review of the consumer credit card market every two years. In addition to seeking information from consumers, the request for public comment invites credit card issuers, industry analysts, consumer advocates and other interested persons to submit information and comments on how the credit card market is functioning and on the continuing effects of the CARD Act. The CFPB has requested information on the following areas:
- Terms of credit card agreements and practices of credit card issuers: how card issuers may have changed their pricing, marketing, underwriting or other practices, and whether those changes have benefited or harmed consumers
- Disclosure of terms, fees and other expenses of credit card plans: how effective current disclosures of rates, fees and other cost terms are in conveying to consumers the costs of credit card plans
- Unfair or deceptive acts or practices in the credit card market: the extent to which unfair or deceptive acts and practices, or unlawful discrimination, still exist in the credit card market, and the frequency and effect on consumers
- Cost and availability of credit: impact on the cost and availability of credit to non-prime borrowers, the use of risk-based pricing and development of new card products
- Online disclosures: how card issuers ensure that consumers using paperless statements (online or mobile banking) receive effective disclosures
- Rewards Products: whether consumers understand the rules regarding rewards programs and potential improvements
- Grace Periods: whether consumers understand the rules governing grace periods and whether any improvements in the grace period disclosures can be made
- Add-On Products: whether card issuers are continuing to market or permit third parties to market add-on products such as debt protection, identity theft protection, credit score monitoring and similar products
- Fee Harvester Cards: whether card issuers are charging upfront fees that exceed 25 percent of the card’s initial credit limit
- Deferred Interest Products: whether consumers using deferred interest promotions understand the risk of being charged retroactive interest and the impact on consumers who are assessed retroactive interest
- Debt Collection Practices: the types of practices used in the industry to minimize losses from delinquent customers prior to charge-off and post-charge-off, how often card issuers use third-party collection agencies and how those relationships are managed, and how often accounts are sold to debt buyers
- Ability to Pay: how the “ability to pay” standards are being implemented by card issuers in determining whether to approve an application, the amount of credit to extend and whether to increase a credit line
The CFPB published the findings of its first review of the CARD Act in October 2013. In its review, the CFPB found that the CARD Act significantly enhanced transparency for consumers with regard to the costs associated with a credit card. However, the CFPB noted that it would continue to review and monitor the above topics to determine whether additional action is warranted. The public inquiry could potentially lead to new regulations in these areas. The credit card industry should stay tuned.