On October 2, 2013, the Consumer Financial Protection Bureau (CFPB) published a report that both evaluates the impact of recent credit card legislation and identifies several “risky” card issuer practices that may draw future CFPB scrutiny.
The report, entitled, “CARD Act Report: A review of the impact of the CARD Act on the consumer credit card market,” is a biennial report that the CFPB issued pursuant to the requirements of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “CARD Act” or the “Act”).
The CARD Act regulates the underwriting requirements for consumer credit card accounts and restricts fees that card issuers may charge to accountholders. Among other things, the Act:
- prohibits card issuers from extending credit without first assessing a consumer’s ability to pay;
- regulates the extension of credit to customers below the age of 21;
- limits upfront fees that card issuers may charge during the first year after opening an account;
- restricts the assessment of late fees and other back end fees; and
- limits the circumstances under which card issuers may raise interest rates on existing accounts.
The report concludes that these provisions have reduced the cost of credit, simplified credit card agreements, and made it easier for consumers to calculate the cost of credit and to comparison shop.
The report also concludes that the Act has decreased the extension of credit to consumers who are under 21 years old and to those who are unable to afford it. Additionally, fewer cardholders now receive unsolicited increases in their credit limits.
Aside from assessing the impact of the CARD Act, the report identifies six credit card industry practices that the CFPB believes “may pose risks to consumers and may warrant further scrutiny by the Bureau.” These practices include the following:
- Add-on Products – The report expresses continuing CFPB concern about the marketing by card issuers of debt protection, identity theft protection, credit score monitoring, and other add-on products. As the report notes, the CFPB has already engaged in several high-profile enforcement actions pertaining to such products and it seems poised to continue its work going forward.
- Fee Harvester Cards – Although the Act limited certain upfront fees that issuers may assess after they open a new account, the CFPB has expressed concern about an unrestricted practice of issuers charging application fees prior to opening a new account.
- Deferred Interest Products – The CFPB will study and “assess whether additional action is appropriate” as to credit card products that provide for a zero percent promotional interest rate but assess interest retroactively if the account balance is not paid in full by a particular date.
- Online Disclosures – The report states that the CFPB will “observe closely” how card issuers ensure that cardholders receive required disclosures under the Act, the Truth in Lending Act, and Regulation Z, when they pay their bills electronically and do not need to access their monthly statements – which contain such disclosures – to do so.
- Rewards Products – The report expresses concern about the quality of disclosures that card issuers make about credit card reward programs, which the report notes can be highly-complex with respect to rules that govern reward eligibility, value, accrual, and forfeiture. The CFPB will “review whether rewards disclosures are being made in a clear and transparent manner, as well as assess whether additional action is warranted.”
- Grace Periods – Finally, the report states that the Bureau will review the quality of issuer disclosures of the terms and conditions of grace periods that permit cardholders to pay their account balances in full, without accruing interest, during a defined period of time.
Card issuers should expect that the CFPB will engage in regulatory, supervisory, and perhaps enforcement activities with respect to these six practices. A copy of the report is available at the following link: http://files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf.