On August 28, 2020, the Consumer Financial Protection Bureau (CFPB or Bureau) published a request for information (RFI) to gather feedback on two related, but separate, inquiries: (1) the economic impact on small entities of the rules that implement the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act Rules or Rules), and (2) a general review examining the consumer credit card market as a whole. The Bureau launched its economic impact review to determine whether the CARD Act Rules should be continued without change, amended or rescinded. The results of the general review of the consumer credit card market will inform the CFPB’s next biennial CARD Act Report.
Comments in response to both inquiries are due by October 27, 2020.
CARD Act Rules Review
Under Section 610 of the Regulatory Flexibility Act, the CFPB is required to review certain rules within ten years of their publication and consider their impact on small businesses.
Between 2009 and 2011, the Board of Governors of the Federal Reserve System promulgated one interim final rule and three final rules that amended Regulation Z, primarily to implement provisions of the CARD Act. Regulation Z implements the Truth in Lending Act. These rules are collectively referred to as the CARD Act Rules. In addition to the provisions that implement the CARD Act, the CARD Act Rules also incorporated certain provisions of a January 2009 final rule amending Regulation Z, a January 2009 final rule amending the Federal Trade Commission Act’s Regulation AA, and certain technical amendments and clarifications to these rules. Rulemaking authority under Regulation Z was subsequently transferred to the CFPB pursuant to the Dodd-Frank Act.
The CARD Act Rules predominantly apply to credit card issuers and other open-end (not home-secured) credit products, and, among other requirements, require card issuers to assess a consumer’s ability to pay before extending credit; restrict the amount of fees that can be assessed during the first year after account opening; limit penalty fees; impose payment allocation rules; and govern interest rate increases.
While reviewing the CARD Act Rules, the CFPB will consider: (1) the continued need for the Rules; (2) the nature of public complaints or comments on the Rules; (3) the complexity of the Rules; (4) the extent to which the Rules overlap, duplicate, or conflict with federal, state, or other rules; and (5) the time since the Rules were evaluated or the degree to which technology, market conditions, or other factors have changed the relevant market.
The CFPB is requesting comment on three distinct topics in connection with the aforementioned Rules.
- First, the CFPB requests comments on the current scale of the economic impact of the Rules as a whole, including the impact the Rules have had on reporting, recordkeeping, and other compliance requirements.
- Second, the CFPB requests comments on whether and how the economic impacts of the Rules could be reduced. For example, a recent study has suggested that while the CARD Act has resulted in such changes as enhanced disclosures for borrowers and has restricted issuers’ ability to raise interest rates or charge late fees, the CARD Act may have resulted in reduced market competition for credit cards which in turn has led to higher prices for consumers. Additionally, the CARD Act appears to have reduced the proportion of available credit from credit cards, and therefore has likely had an adverse effect on non-prime borrowers. Certain entities, such as credit unions, have also indicated that the CARD Act has increased their compliance costs.
- Third, the CFPB requests current information relevant to the factors that the CFPB should consider in completing its review under Section 610, as stated above. Considerations such as the increasing request for electronic disclosures and fewer notices by mail may be considered, as part of a review of the “degree to which technology, market conditions, or other factors have changed the relevant market.”
Review of the Consumer Credit Card Market
The review of the state of the consumer credit card market is mandated by Section 502(a) of the CARD Act, which requires the CFPB to conduct a biennial review of the market. To date, the CFPB has issued four of these reports on the state of the market.
In connection with the upcoming fifth report, the CFPB is seeking information regarding how the credit market is functioning. The CFPB is seeking both general comments and specific responses to aspects of the consumer credit market required by Section 502(a) of the CARD Act, as set forth below:
- The terms of credit card agreements and the practices of credit card issuers;
- The effectiveness of disclosure of terms, fees, and other expenses of credit card plans;
- The adequacy of protections against unfair or deceptive acts or practices relating to credit card plans;
- The cost and availability of consumer credit cards;
- The safety and soundness of credit card issuers;
- The use of risk-based pricing for consumer credit cards; and
- Consumer credit card product innovation.
The CFPB notes that while it has identified these specific topics for comment, the list of subjects is not exhaustive because it “wants to be alerted to and understand the information that consumers, credit card issuers, industry analysts, consumer groups, and other interested persons believe is most relevant to the Bureau’s review of the credit card market.”
As the CFPB acknowledges in the RFI, while the CARD Act reviews are statutorily required, and not triggered by the COVID-19 pandemic, the responses the Bureau receives will reflect the economic conditions resulting from the pandemic. The CFPB will have to determine whether and how to take the financial impact of the pandemic into consideration in its reviews.