On December 3, the CFPB released its Report required by the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), with its perspective on the current state of the credit card market. The Report asserts that, since the enactment of the CARD ACT, consumers have avoided a combined $16 billion in over-limit and late fees. The report also posits that credit has generally become more available to consumers, and the number of new accounts has grown faster than in almost every other major consumer credit market.
Despite its generally positive outlook on the state of the credit card market, the CFBP identified five credit card practices that it believes "may pose risks to consumers and may warrant further scrutiny by the Bureau:"
"Deferred-interest promotions can hit consumers with back-end pricing:" The CFPB continues to view credit cards with zero interest promotional period as a potential problem area, finding that consumers, especially those with lower credit scores, are sometimes unable to pay off their balances by the end of the promotional period and so are retroactively charged interest on the entire balance. The CFPB will continue "study" these types of products.
"Subprime credit card companies charge much more for credit:" Although the Report indicates that credit card pricing has generally improved since the CFPB's last report in 2013, it noted that subprime pricing and fees remained higher than other types of credit cards which in turn makes it difficult for subprime borrowers to payoff balances.
"Rewards programs have obscure and incomplete terms and conditions:" The Report identifies "[t]he number of different disclosures associated with rewards cards, and the timing of when consumers receive them or have access to them" as areas of potential concern with respect to rewards programs.
"Debt collection practices pose risks to consumers:" The Report states that the "conduct of debt collectors can present substantial risk to consumers," and revealed that the CFPB received more than 88,000 complaints from consumers about debt collection in 2014, one in seven of which pertained to credit card debt collection.
"Some credit card agreements are still long and complex:" The Report also noted that most credit card agreements range between 3,000 and 8,000 words, which the CFPB believes can lead to increased customer confusion.
Despite the CFBP's generally positive outlook on the state of the credit card market, credit card issuers can expect continued scrutiny, especially regarding promotional interest rates, debt collection, and credit card agreements. Credit card issuers would be well served to revisit the terms of their promotional interest rate products and cardholder agreements to determine if the terms and conditions can be further simplified, to thwart later claims by the CFPB that the terms are too confusing for consumers.
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