The U.S. government – through the CARES Act and the actions of myriad federal agencies including the Federal Reserve, FDIC, and CFPB – has acted to provide relief to credit card consumers affected by COVID-19. Credit card issuers themselves have largely followed the guidance and recommendations promulgated by federal agencies under the CARES Act, and many issuers have gone above and beyond it. Nonetheless, opinions have diverged in the United States and abroad about how best to provide relief.
Under the CARES Act and direction from both federal1 and state regulatory agencies, credit card issuers have been encouraged to provide credit card consumers affected by COVID-19 with forbearance options. In general, issuer responses have involved the creation of temporary hardship programs allowing consumers to skip minimum payments for some specified period of time during the current economic uncertainty.
Although no formal rulemaking has outlined the required setup of temporary hardship programs, federal and state regulatory agencies have urged financial institutions to work quickly to establish forbearance options, and they will take a favorable view of actions that might otherwise call for more extensive regulatory reviews. For example, issuers are generally cautioned by federal agencies before establishing forbearance programs, given that such programs have the potential to impose larger minimum payments on consumers at the conclusion of the forbearance period.
For the time being, federal and state authorities have focused on promoting accommodations broadly without requiring specific actions. U.S. banks have for the most part acted on such guidance, with forbearance as the preferred means of providing relief to credit card consumers.
Canadian Credit Card Relief
In contrast to the generally open-ended guidance issued by U.S. regulators and their recommendation to start with forbearance programs, the Canadian government and Canadian banks have taken a more prescriptive approach for providing credit relief to their nation's consumers.
Although many Canadian banks are providing forbearance options, the Canadian government has advocated for more specific relief in the form of reduced interest rates for credit card consumers. A number of Canadian banks, including the country's six largest lenders, have already heeded the call from Prime Minister Trudeau's government and drastically reduced interest rates for credit card consumers.
Legislators in the U.S. Senate would like to see the federal government take a similarly prescriptive approach to outlining consumer relief programs. While not taking specific issue with the decision to promote forbearance programs, five Democratic Senators on the Senate Committee on Banking, Housing, and Urban Affairs, including Ranking Member Sherrod Brown (D-OH), in an April 7, 2020, letter, single out the CFPB for criticism for an alleged lack of steps taken to protect credit card consumers .
In particular, the letter cites the following CFPB decisions as exemplary of the Bureau's disregard for credit card consumers:
- Without implementing any interest rate or ability-to-pay guidelines or limitations, the CFPB, on March 26, "issued guidance that 'encourages' banks and credit unions to issue small dollar loans to consumers."
- The CFPB rolled back requirements under Regulation Z that credit card issuers submit information relating to product terms and prices, as well as issuers' agreements with institutions of higher education.
- The CFPB essentially waived requirements under the FCRA to investigate and respond to consumer disputes within 30 days by announcing "that it would not hold companies' failure to meet the statutory deadlines against them in a CFPB examination or enforcement action."
The letter goes on to call for CFPB action on the following measures designed to aid credit card consumers:
- With relation to credit reporting under the FCRA and relevant CARES Act provisions, "[d]irect lenders to uniformly apply a disaster code on the account of any consumer experiencing economic hardship and ensure that the application of the disaster code prevents damage to consumer's credit score."
- Issue guidance enlarging the scope of UDAAP violations to encompass engaging in collections activities during the crisis.
While the letter focuses primarily on consumer reporting issues with respect to credit card consumers, it also highlights the lack of formal direction for banks looking to provide relief on consumer loan products generally.
It remains to be seen whether the U.S. government, including the CFPB, takes action related to the Democratic criticisms outlined above, or whether additional legislative pressure will emerge for U.S. banks to model the more aggressive recommendations made by the Canadian government for its largest lenders.
If no action is taken related to interest rates, there remains the possibility that at the conclusion of forbearance periods, consumers will face obligations they are unable to pay. As such, financial institutions may encounter even more regulatory guidelines related to providing assistance to their credit card consumers.