As required by law, the Consumer Financial Protection Bureau (CFPB) has once again asked for public comment on a variety of topics related to the credit card market. The comment period has ended for the most recent request for information (RFI), with 32 entities, ranging from financial services organizations to consumer groups, weighing in.

What happened

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) requires the CFPB to conduct a review of the consumer credit card market every two years. Following reviews in October 2013 and December 2015, the CFPB submitted an RFI in March 2017 requesting public feedback on 13 topics that are indicative of how the credit card market is functioning. The topics include credit card terms, disclosures and issuer practices, consumer protections, the cost of credit, deferred interest products, innovation, secured cards, and rewards products, among others.

Dozens of stakeholders took the opportunity to share their thoughts. For example, the comments from the American Bankers Association (ABA) focused on the increase in cost and the decline in the availability of credit since the CARD Act was implemented, writing that issuers are “more inclined to deny credit to applicants seen as potentially high-risk” because of the legislation, and to impose “higher interest rates at the outset of the lending relationship than they would otherwise in an effort to manage risk.” Consumers, particularly lower-income individuals, have been hit hard by the statute’s ability-to-pay requirement, the ABA told the CFPB, with many turning to other short-term lending options (such as payday loans) as a result.

Responding to some of the CFPB’s questions, the group said rewards products are priced competitively and are well understood by consumers, demonstrated by the growing volume of rewards accounts. The ABA urged the CFPB to facilitate a process for companies to obtain reliable advisory opinions to spur innovation in the market, which would “provide a means for innovators to engage in a dialogue with the Bureau and other regulators before a product reaches consumers to avoid potential violation of consumer protection laws.”

The group also took the position that deferred interest products “are popular and beneficial to consumers and retailers,” and there is “little evidence” that users do not understand how the products function. Small and midsize retailers find the products useful, the ABA noted, and “merchants do not stay in business by alienating their customers with defective products, financial or otherwise.”

Similarly, the Consumer Bankers Association (CBA) and the Financial Services Roundtable (FSR) jointly authored a letter that praised rewards products as “an example of effective self-regulation that negates the need for regulatory intervention” and deferred interest products as “valuable to consumers and small businesses alike.” Specifically, the groups said no additional action by the CFPB in connection with deferred interest promotional offers was necessary. Consumers appear to understand deferred interest offers and continue to benefit from them, they wrote, with no CFPB action needed.

Turning to rewards products, the groups described them as “a key driver for consumer product selection, continued engagement with their credit cards, and overall product satisfaction.” Credit card issuers have enhanced their disclosures to inform consumers of key terms at the right time, the CBA and FSR told the CFPB, with the members of their groups making real progress in simplifying the terms governing how rewards are earned and may be redeemed, making any limitations “readily apparent” to consumers.

“Such effective self-regulation and focus on positive consumer experiences with reward programs negates the need for regulatory intervention from the Bureau,” the groups wrote. “Introducing regulations to govern reward programs will make these programs more difficult to operate and stifle further innovation.”

Commenting from the perspective of retail merchants, the National Retail Federation (NRF), the world’s largest retail trade organization, devoted its comment letter exclusively to deferred interest products—programs that are “a longstanding practice within the retail industry.”

“A significant number of NRF members have long offered deferred interest purchase plans for their customers,” according to the group’s comment. “The plans are valued by consumers, and by the retailers who offer them. For retailers, they meet customer needs and are a valuable competitive tool. For many consumers, they are a money-saving option for large ticket purchases.”

The NRF noted that while there are risks inherent in deferred interest products, the CFPB’s own statistics demonstrate that the majority of consumers follow the terms and pay no interest. Significantly, however, the NRF commented that in some cases, the CARD Act has made it difficult for consumers to avoid paying a finance charge because it requires “creditors to apply the maximum amount of a customer’s payment to the highest interest open account immediately due.” This denies the consumer the ability to control his or her payment allocations. The NRF suggested that the CFPB encourage Congress to address this concern.

On the other end of the spectrum, Consumer Action (CA) wrote that “retailers and cards that offer deferred interest not be allowed to apply interest until the end of the deferral period,” a proposal similar to that of letters recently sent by the CFPB itself.

The group also noted an overall improvement in card disclosures, sharing examples from credit card offers it found clear as well as those that it declared vague and misleading, or that used “vast” rate ranges, which it said are not helpful when consumers are comparison shopping for a card.

Transfer fees for using a credit card for overdraft protection are in need of scrutiny, the CA told the CFPB, while some new marketing approaches concern the group, which suggested the CFPB conduct a review for signs of disparate impact. The comment closed with support for the planned prohibition on class action bans in arbitration clauses, hoping to see a final rule on arbitration from the CFPB in the near future.

Why it matters

Credit cards are the most commonly used form of consumer credit. Reflecting their constituents, the industry groups that provided comments presented a variety of perspectives on the consumer credit market to enable the CFPB to access whether, and to what degree, the CARD Act is effective.