United States: CFPB Signals Additional Concerns About Consumer Credit Card Market With Report On CARD Act

Today, the Consumer Financial Protection Bureau ("CFPB") released the "CARD Act Report," a report summarizing the CFPB's views on the impact of the Credit Card Accountability Responsibility and Disclosure Act of 2009 ("CARD Act" or "Act") on the consumer credit card market ("Report"). The Report was issued pursuant to Section 502(a) of the CARD Act, which mandates that the CFPB conduct a biennial review of the consumer credit card market, including the effect of the Act on the cost and availability of credit and the adequacy of protections for credit cardholders. With the Report, the CFPB signals that it has concerns about four features found in the consumer credit card market: deferred interest programs, online disclosures, rewards programs and grace periods. The CFPB also highlights continuing concerns about the offering of add-on products and pre-account opening fees.

In a press release accompanying the Report, CFPB Director Richard Cordray states that "[t]he CARD Act brought better consumer protections and fairness to the marketplace, but we found there is more work to be done." The CFPB states that the Report draws upon publicly and commercially available data, as well as data obtained by the CFPB through its supervision of large credit card issuers.

CFPB's Concerns about Consumer Credit Card Features

In the Report's section on the adequacy of current consumer protections, the CFPB identifies outstanding areas of concern about the following card products and features.

  • Deferred interest programs: The Report states that approximately 43% of deep subprime cardholders did not pay their deferred interest balances in full by the required payment date and, thus, incurred interest on the entire deferred interest balance. Based on this, the CFPB indicates that it intends to study the risks and benefits of such programs.
  • Online disclosures: The Report expresses concern over whether disclosure requirements for paper statements adequately translate to electronic media. The Report uses the required minimum payment warnings as an example, and expresses concern that consumers may not be viewing these disclosures before paying through online portals or automatic payment methods. The Report also notes that the CFPB intends to study "how card issuers ensure that consumers receive disclosures in different channels."
  • Rewards programs: The Report questions whether disclosures concerning rewards features are made in a clear and transparent manner that allow consumers to comparison shop between products. The Report suggests the CFPB has concerns about the manner in which promotional and incentive rewards are disclosed, whether formulas used to calculate rewards are easily understood by cardholders and the forfeiture of rewards points.
  • Grace periods: The Report questions whether consumers understand disclosures about the requirements to qualify for and maintain grace periods, and whether current disclosures are presented in a clear and transparent manner.
  • Add-on products: The CFPB states that it remains concerned about the way add-on products are marketed and will continue to pursue deceptive practices in the market. The Report also highlights recent actions the CFPB has taken against credit card issuers offering add-on products.
  • Fee harvester cards: The CFPB states that it will continue to monitor the use of application fees in connection with account openings to determine whether it should take action under its available authorities. During the course of CARD Act implementation, issuers challenged the application of the Act's limitation on fees to pre-account opening fees, such as application fees. To resolve uncertainty created by litigation, the CFPB said it issued a revision to Regulation Z's Section 1026.52(a) requirements that permitted pre-account opening fees as an exclusion to the CARD Act's 25-percent limitation on first-year fees, but that it intends to monitor use of such fees closely.

Review of CFPB's Analysis and Views

In an effort to support the CFPB's stated concerns about the adequacy of consumer protections in the credit card market, and based on its analysis of data and experience monitoring the credit card market, the CFPB's Report analyzes the CARD Act's impact on the cost of credit; the availability of credit; agreements, disclosures and issuer practices and product innovation.

Cost of Credit

The CFPB writes that the overall cost of credit, including interest rate charges and other fees, have declined. The CFPB made specific statements in the following areas.

  • Total cost of credit: The CFPB states that "among the card issuers represented in the ["CFPB's] credit card database (representing between 85% and 90% of credit card industry balances), the total cost of credit – i.e. the annualized sum of all amounts paid by consumers (including both interest charges and fees) divided by the average of outstanding balances – declined by 194 basis points from Q4 2008 to Q4 2012." Nevertheless, the CFPB acknowledged that "it is unclear how much of that change is attributable to the CARD Act."
  • Rates and annual fees: The Report notes that the amount and frequency of annual fees has increased since enactment of the CARD Act, with the average annual fee rising by approximately two dollars. The Report also states that the average annual percentage rate increased by 230 basis points at times that corresponded with the passage and implementation of the CARD Act, before declining slightly for super prime and prime customers in 2011. The CFPB writes that the increases in both rates and annual fees were an intended consequence of the CARD Act, as the Act directs issuers to shift from back-end pricing, such as penalty rates and fees, to more transparent up-front pricing.
  • Reduction in penalty fees: The CFPB also writes that overlimit fees have effectively been eliminated, and that the size of late payment fees has declined due to CARD Act limitations on these fees. Specifically, the CFPB states that "consumers paid about $2.5 billion less in overlimit fees than they paid in 2008" and that the reduction in late payment fees "resulted in a $1.5 billion decrease in late fees paid by consumers in 2012."

Availability of Credit

The CFPB writes that "[w]hile 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." Nevertheless, the Report states that "[t]he evidence suggests that the CARD Act had a discernible impact on credit availability in three discrete respects."

  • First, the CFPB notes that there has been a substantial decrease in the number of credit card accounts originated among students and other consumers under the age of 21. The CFPB writes that this is an intended effect of the CARD Act, and that young consumers are better protected from credit cards they cannot afford.
  • Second, the CFPB states that a small but discernible percentage of applicants that are otherwise creditworthy are being declined as a result of insufficient income to satisfy the Act's ability-to-pay requirement.
  • Third, the CFPB notes that there has been a marked decline in the number of consumers receiving unsolicited credit line increases (also referred to as "proactive line increases") on their accounts, and that at least some of these limitations on access to credit appear to be intended consequences of the CARD Act.

The CFPB based its analysis of the availability of credit on available metrics, such as the number of mailed solicitations, new account originations, application approval rates and credit line size. While the CFPB acknowledges that certain metrics, such as the decline in origination volume for subprime borrowers, "suggests a reduction in availability of credit for customers with subprime scores," the CFPB states that there is nearly $38.6 billion in unused subprime credit lines and that the reductions in the availability of credit started before the enactment of the CARD Act. Comparing the post-recession recovery in the credit card market to the markets for auto loans, first-lien mortgages, home equity loans and home equity lines of credit, the CFPB states that the data "do not suggest that, in general, recovery in the card marketplace has been negatively impacted by the CARD Act."

Agreements, Disclosures and Issuer Practices

The Report also reviews required and voluntary post-CARD Act changes to cardholder agreements, disclosures and issuer practices.

  • Voluntary agreement improvements: The CFPB acknowledges that many issuers have improved the readability of their credit card agreements. Specifically, the CFPB notes that agreements now have more than 2,000 fewer words and that the readability score of these agreements has improved to a 55.3 out of a possible 60 points on the Flesch-Kincaid scale. In his remarks about the Report, Director Cordray applauded issuers who have made such voluntary changes.
  • Periodic statement disclosures: The Report states a belief that minimum payment warnings led to a slight reduction in the number of consumers making only the minimum payment, but that minimum payment disclosures could warrant future study. The CFPB expresses concern that a "meaningful number of consumers" may not see the minimum payment warnings because they make payments online or through automatic payment methods.
  • Interest rate reviews: The Report states that interest rate reviews have benefited consumers, potentially helping millions of consumers save as much as $2.1 billion in interest payments.

Product Innovation

The Report briefly discusses the CARD Act's impact on product innovation, noting that the Act was intended to restrict innovations deemed harmful to consumers. The CFPB states that post-CARD Act innovations have focused on providing simple and transparent account features and terms.

The Report may be accessed at http://files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf .

The CFPB's press release on the topic may be found at http://www.consumerfinance.gov/newsroom/cfpb-finds-card-act-reduced-penalty-fees-and-made-credit-card-costs-clearer/ , and Director Cordray's remarks may be found at http://www.consumerfinance.gov/newsroom/director-cordray-remarks-at-the-card-act-field-hearing/ .

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Matthew W. Janiga
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions