After targeting credit card late fees in its proposed rule, the CFPB has set its sights on further attacking credit card pricing through interest rates. The CFPB published a blog late last month stating that credit card interest rate margins are at an all-time high, with an average 14.3% margin in 2023 compared to 9.6% margin in 2013, and have fueled the profitability of revolving balances. The CFPB also issued a data spotlight late last month that found that interest rates charged on credit cards issued by large banks are higher than interest rates charged on credit cards issued by smaller banks and credit unions. The report concluded with the statement that “[t]he CFPB is working on a number of fronts to jumpstart competition in the credit card market, including the development of rules to promote consumers’ freedom to switch providers, addressing loopholes that obscure upfront pricing, taking enforcement actions against illegal rewards conduct, and scrutinizing comparison websites for deceptive design and business practices.” In the press release about that report, the CFPB previewed that it was developing a new tool that will give consumers “an unbiased way to compare credit card terms and interest rates.”

On February 29, 2024, the Consumer Bankers Association (“CBA”) published a new blog post, Checking the Math Behind the CFPB’s Comparison of Credit Card Interest Rates Between Large and Small Issuers. The CBA reviewed the math behind the CFPB’s claims that large issuers charge higher annual percentage rates (APRs) than small issuers. The CBA noted that federal credit unions (whose APRs are capped by statute and regulation at 18%) were included in the CFPB’s data comparison and skewed the data. Moreover, credit unions are not subject to the Basel capital and Community Reinvestment Act requirements that apply to large banks and under federal law cannot serve the general public.

When the CBA excluded the credit unions from the CFPB’s data, it obtained very different results:

• The APR difference between large and small issuers range from 2.2% to 5% instead of “8 to 10 points higher” as claimed by the CFPB.
• Only 13 small issuers offered products to customers with subprime credit scores versus 68% percent of large issuers.
• 80% of large issuers offer products nationwide compared to less than half of small issuers.
• 18% more large issuers offer reward programs.

The CBA stated, “[W]hile the Bureau focuses solely on APRs, credit issuers compete on a number of different dimensions: their ability to underwrite consumers; fees; rewards; and broader benefits like airline lounges, and a range of product innovations.” Consumers have many credit card options and choose among the credit cards that are available to them based on their credit score and which card will work best for their planned use. Transactors, who pay their balance in full each billing cycle, typically shop for different card terms than revolvers, who carry a balance from month to month, typically shop for. The CFPB should understand those differences and not take actions to reduce credit card competition that is prevalent in the marketplace.

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