The CFPB issued a "compliance assistance sandbox" ("CAS") approval to Synchrony Bank ("Synchrony") in connection with its "dual-feature credit card program" ("DFCC"), providing a safe harbor from potential liability under the Truth in Lending Act. The dual-feature program provides customers with an initial secured credit card and, following a one-year period, the opportunity to graduate to the unsecured feature of the account.
The CFPB established the CAS policy as a means to provide a safe harbor to applicants "for testing innovative products and services" for a limited period of time while sharing data with the CFPB.
As described in the CFPB Approval Order, the DFCC gives consumers with lower credit scores the opportunity to improve or establish their credit profiles. The DFCC offers a secured credit card to consumers who provide a security deposit at the opening of the account and, if the customer clears eligibility thresholds after one year, affords the opportunity to "graduate" to the account's unsecured feature. Synchrony stated that its secured feature has a "substantially lower" annual percentage rate ("APR") that of other secured cards, but if the customer graduates to an unsecured credit card, the customer will pay a higher rate of interest reflecting the increased risk of unsecured credit.
The DFCC discloses the cost difference between the secured and unsecured features and aims to make the graduation process to unsecured use as "seamless, clear, and straightforward as possible." At graduation, consumers may elect to opt-in and pay the higher interest rate; if they choose not to opt in, they can continue on the secured card and pay a lower interest rate. For any customer who does graduate to the unsecured feature, the security deposit would be used to pay the outstanding balance, the remainder would be returned to the cardholder, and the customer then would have full unsecured access to his or her credit limit.
The CFPB determined that Synchrony would be in compliance with:
- CFPB Rules 1026.60(b) and 1026.6(b), with regard to, respectively, the application and solicitation disclosure table, and the account-opening disclosures;
- CFPB Rule 1026.9(b)(1), with regard to the pre-use notification requirements at graduation to "opt-in" to the unsecured use of a DFCC;
- CFPB Rules 1026.55(a) and (b)(3), with regard to the advance notice exception to an APR, fee or charge increase, as well as CFPB Rule 1026.55(c), with regard to Synchrony's treatment of any secured balance existing at graduation; and
- CFPB Rule 1026.9(c)(2), with regard to the 45-day advance notice of a "significant" change in account terms for the opt-in.
Primary Sources
- CFPB Press Release: Consumer Financial Protection Bureau Issues Approval Order to Facilitate the Use of Dual Usage Credit Cards
- CFPB CAS Approval: Synchrony Bank
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