Compliance Blog

Written by JiJi Bahhur, Regulatory Compliance Counsel

CFPB’s Findings on the CARD Act.  The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) was signed into law in May 2009 with the intent of establishing fair and transparent practices in the credit card market.  Last week, the CFPB released a report detailing how the CARD Act has, as intended, increased consumer protections and fairness, including reducing penalty fees and making the cost of credit cards clearer to consumers. 

In preparing its report, the CFPB used data covering most of the credit card marketplace.  Based on this data, several findings were made.  As summarized by the press release, the report found that:

• “Total cost of credit declined: The CFPB found that the total cost of credit declined by two percentage points between 2008 and 2012. The total cost of credit includes all fees, interest, and finance charges paid by the consumer to the card issuer. The decline in the total cost of credit has occurred even as annual fees and interest rates have increased, indicating a shift from back-end pricing toward more transparent front-end pricing that consumers can understand and evaluate more easily.

• Overlimit fees have been effectively eliminated: Before the CARD Act took effect, card issuers could charge an overlimit fee for transactions that put cardholders over their credit limit. Each overlimit transaction could result in an additional overlimit fee. With the law’s requirement that consumers opt-in to fees before they are allowed to exceed their credit limit, the CARD Act essentially eliminated overlimit fees as a source of cost to consumers and revenue to issuers. The report found that consumers paid about $2.5 billion less in overlimit fees than they paid in 2008.

• Size of late fees declined: The CARD Act required that penalty fees, such as late fees, be “reasonable and proportional” to the relevant violation of account terms. As a result, the report found that the average size of late fees diminished. The CFPB estimates that the average late fee went down by $6 after the CARD Act took effect. Based on the data used to prepare the report, that reduction resulted in a $1.5 billion decrease in late fees paid by consumers in 2012.

• Responsible access to credit remains available: As the financial crisis hit, creditors faced losses and as a result, implemented more restrictive credit standards. While the amount of available credit card credit has generally decreased since the financial crisis began, there is still $2 trillion of unused credit for consumers with credit cards in the marketplace. One factor affecting credit availability is a notable drop in the number of consumers who receive unsolicited credit limit increases on their accounts. Now that consumers have to ask for their credit limit to be raised rather than having it happen automatically, these increases are happening less frequently.

• Young consumers are better protected from credit cards they cannot afford: Before the CARD Act, it was often too easy for young consumers to rack up unmanageable credit card debt and damage their credit rating. Now, consumers under the age of 21 cannot get a credit card unless they can demonstrate an independent ability to repay the debt or unless they have a cosigner over 21. The report found that the percent of young adults ages 18-20 that have at least one credit card account has dropped by half.”

Although the overall findings included a two-percentage point decline in the total cost of credit between 2008 and 2012, there are still areas of concern in the credit card market.  Some of the areas of concern include add-on products, fee harvester cards, deferred interest products, and disclosures – all of which are discussed in more detail in the report.  The CFPB will continue to monitor these areas of concern and take action where appropriate.

To view the report in its entirety, click here.  Also, you can view NAFCU’s comment letter on the subject matter here.

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NCUA’s 2014 Board Meeting Schedule. Last Friday, the NCUA Board released its monthly meeting schedule for 2014.  The schedule, subject to change, is available here. 

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