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The Consumer Financial Protection Bureau (CFPB) has issued a second, 300-page, comprehensive report on the CARD Act of 2009. Much of the focus is on credit card transparency, debt collection practices, plastic that postpones interest payments with special incentives, and the increasingly popular category of cards that offer rewards programs.
The CFPB is required to issue periodic market reviews under the CARD Act. The just-released report is a follow-up to the first report that was issued by the CFPB back in October of 2013. The first report was just short of 100 pages in length, and revealed that credit costs and the number of borrowers have dropped. This new report details how conditions have remained stable or improved, and identifies areas of risk.
Highlights of the Report
Statistics confirmed that many provisions of the CARD Act have helped protect consumers and help them save money. Here are some positives of the Act highlighted in the report:
- The CFPB has helped ensure the virtual elimination of over-limit fees. Cardholders paid $9 billion less in over-limit fees from 2011 through 2014 than they would have paid if issuers had continued to assess such fees at the 2008 rate. Similarly, restrictions on late fees also saved consumers $7 billion during that same timeframe.
- The total cost of interest and other fees paid by cardholders has continued to drop. Today Americans pay approximately 2% less in interest and fees than they did prior to passage of the Card Act.
- There was around $3.5 trillion in available credit on credit cards to consumers in early 2015. That’s an increase of 10% more than what was available in 2012. The use of that available credit has also fallen. Of the $3.5 trillion on hand, $2.8 trillion was unused as of early 2015. That’s a great sign that consumers are managing their credit cards smarter, because when you have available credit but don’t utilize it, it shows that you’re managing your money and not maxing out your balances
- The cost of credit is more predictable and transparent than ever before.
The overall number of credit card accounts grew by approximately 3% in 2013 and again in 2014. That annual growth outpaced the growth in the nation’s adult population, which was about 1% each year, an indication that cardholders are now carrying more cards in their wallet than they were a few years ago.
The CFPB is still rather concerned about a few topics that were highlighted in its 2013 report, including:
- Consumers are still not well-equipped to accurately evaluate the pros and cons of using a rewards card, particularly, for example, when cardholders are likely to carry a balance on their plastic. Carrying a balance on a rewards card can undermine the benefits and cash value of earning rewards in the first place, so you end up giving back whatever gains were made by accumulating rewards points or cash back.
- More transparency and information around introductory offers such as low-interest balance transfers should exist. Some cardholders accept those introductory offers, but don’t successfully pay off the balances before the teaser rate expires.
- Many store-branded credit cards come with deferred interest repayment plans with attractive monthly payments. But if the consumer doesn’t repay the whole balance within the introductory time period, they can wind up owing all of the interest that was deferred, retroactively.
- Subprime products are more expensive than their mass market counterparts. These subprime issuers are charging more on origination and maintenance fees, which means the large majority of consumer monthly payments are going towards fees and the interest on fees instead of the principal balance.
- Complaints about debt collection practices are still high. The report pointed out, for instance, that some card companies allow their debt collectors to call consumers up to 15 times per day, as well as on successive days. The CFPB is expected to propose tougher regulations to restrict unsavory debt collection practices.
Other areas discussed in the report include the readability of credit card agreements – which the CFPB wants to shorten and make even more transparent- as well as create innovations in card security and the use of mobile devices to make credit card payments.
These areas of concern will guide CFPB efforts in the coming months and years. They are also expected to be the focus of greater scrutiny of card companies and will continue to enforce these regulations through fines and other legal actions to curtail bad behavior in the industry.