Status Update: CFPB Requests Information on the Credit Card Market

This week we are covering two recent notices from CFPB related to credit cards. Section 502(a) of the CARD Act requires the CFPB to conduct a review of the consumer credit card market every two years. As part of this review, CFPB invites comments from the public and industry stakeholders on a number of aspects of the consumer credit card market. The last review took place in September of 2021.

In its Request for Information, the CFPB asks a number of questions about how the credit card market is functioning. Topic areas cover terms and conditions, rewards, collection practices, fees, deceptive practices, safety and soundness, risk-based pricing, product innovation, and more.

For example, some of the questions asked include:

• How have issuers changed their pricing, marketing, underwriting, or other practices?
• Has the use of electronic communication (e.g. email or SMS) by creditors and debt collectors in connection with credit card debt grown or otherwise evolved? If so, in what ways?
• How well are current credit card disclosure rules and practices adapted to the digital environment?
• How have the cost and availability of consumer credit cards (including with respect to non-prime borrowers) changed since 2021?
• How has the use of risk-based pricing for consumer credit cards changed since 2021?
• How has credit card product innovation changed since 2021?
• How is competition in the consumer credit card market changing?
• What obstacles may smaller financial institutions face when launching a credit card product?
• How do innovations by firms offering other financial products and services (such as buy-now-pay-later credit, mobile payments, or non-card point-of-sale loans) compete with credit cards, and to what extent do consumers view them as effective alternatives to or substitutes for credit cards?

As you can see, it's a very comprehensive review.

In September of last year, CFPB Director Rohit Chopra met with credit union leaders from Virginia. During the meeting, he talked about the importance of credit cards in the sub-prime credit market, and his belief that credit unions can and should play a key role in that market.

It's critical for our lawmakers and regulators to understand the complexities of the credit card market. We've seen what can happen when it's over-simplified - last year's Credit Card Competition Act, also known as interchange legislation, was born from the presumption that the credit card market is uncompetitive and that Visa and Mastercard are taking advantage of merchants. At the regulatory level, CFPB issued a Proposed Rule last week which would cap the safe harbor dollar amount for late fees at $8 and limit late fees to 25% of the required payment (more on that to come).

Initiatives like these are obviously focused on the user - the amount of interchange fees merchants are paying, or the amount of late fees consumers are paying. Credit unions know that’s only one part of the

picture. Factors like the rising rate of fraud, chargebacks, costs of securing the network, increased competition, compliance burden, and even rising costs of re-issuing cards are rarely mentioned in the headlines, but they are real factors we work to keep top of mind for our lawmakers and regulators.

The League will submit a comment to CFPB addressing some of these questions. If your credit union has seen changes to your credit card program in the last two years, we'd love to incorporate your experience into our letter. Please reach out to me at jblau@vacul.org with any feedback or information by April 1, 2023.

Virginia’s credit unions play a key role in the credit card marketplace, helping members build credit, fit their spending within household budgets, and avoid other more expensive credit options that may be detrimental to their financial health. They are innovating their programs to stay compliant and competitive in this thriving market. Requests for Information like this allow us to share the whole picture with key decision makers.