Credit-card issuers may face new limits on fees and greater disclosure requirements as the U.S. Consumer Financial Protection Bureau pledges more scrutiny after a 2009 law that revamped regulation of the business.
“The CARD Act brought better consumer protections and fairness to the marketplace, but we found there is more work to be done,” CFPB Director Richard Cordray said at an agency hearing in Chicago today.
The Credit Card Accountability Responsibility and Disclosure Act of 2009, limited lenders’ ability to raise interest rates, curbed late fees and forced issuers to seek customers’ approval to apply over-limit fees. Now the bureau will examine whether certain cards impose undue fees, and whether issuers adequately disclose terms and conditions, Cordray said.
New CFPB action on credit cards could affect major lenders by limiting fees they can collect or restricting marketing techniques. The six biggest U.S. credit-card issuers are JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. (C), American Express Co. (AXP), Capital One Financial Corp. (COF) and Discover Financial Services. (DFS)
The CFPB published a report on the card business today, using data from before the 2009 law took effect through December 2012, Cordray said.
William Johnson, chief executive officer of Citigroup’s retail services unit, said that the legislation’s impact on the availability and cost of credit is difficult to measure because the economic downturn and higher capital requirements for banks also play a role.
“The data is open to differing interpretations,” Johnson said at the hearing.
Lauren Saunders, managing attorney at the National Consumer Law Center, praised the Card Act for eliminating some practices. She also said the industry needs to provide more flexibility for borrowers who face financial hardship, and market less to people who are carrying too much debt.
“The biggest overall problem is that it is still too easy to get way over your head in credit-card debt, and too hard to get out,” Saunders said at the hearing.
In his remarks, Cordray said the law saved consumers a total of $4 billion in 2012 by cracking down on how late fees and over-limit penalties are assessed, according to CFPB research. The total cost of credit on the cards, which includes all fees and finance charges, declined by two percentage points.
Cordray also complimented banks for voluntarily streamlining their credit-card disclosure forms.
“The card agreements we studied from the largest card issuers have decreased by more than 2,000 words on average and that readability has gone up -- making the market more accessible and transparent for consumers,” Cordray said in his remarks. “This is not something the CARD Act required.”
The agency will “keep a close eye” on how card issuers impose application fees, and whether they merit CFPB action, Cordray said.
The 2009 law limits upfront fees that exceed 25 percent of the card’s credit limit, a provision intended to stamp out what were referred to in the report as “fee harvester” cards. Since application fees are exempt from the limit, there is potential for consumer harm, Cordray said.
Cordray also said that the CFPB will study “deferred interest” cards that allow zero interest to start, but impose interest retroactively if the balance is not paid by a certain date. The data indicates that 40 percent of subprime borrowers end up being charged the interest, Cordray said. The study defined such borrowers as those with FICO scores below 659.
The CFPB also is examining the quality of disclosures lenders make about rewards programs associated with the cards, and about payment grace periods.
The CFPB will maintain its crackdown on credit-card add-on products, such as debt cancellation and credit monitoring, Cordray said.
The agency has already brought cases against Capital One and Discover for marketing such products in a deceptive manner. JPMorgan agreed last month to pay $389 million in restitution and penalties over allegations it unfairly charged customers for credit monitoring products.
“We will continue to use both our supervisory and enforcement authorities to protect consumers by rooting out unfair, deceptive or abusive acts or practices,” Cordray said.
Cordray also deflected criticism that the CFPB is invading Americans’ privacy in preparing the report, which used “anonymized industry data.” The CFPB has used Argus Information & Advisory Services, a White Plains, New York-based consultancy, to collect information on credit-card usage.
“We never receive a card holder’s name or other direct or unique identifiers, we never receive information describing the specific transactions on any account, and we do not monitor any individual’s financial transactions,” Cordray said.
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