The CFPB’s fourth biennial report on the credit card market was issued at the end of August.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) requires the CFPB to perform periodic market reviews. The CFPB’s first CARD Act report was issued in October 2013, its second report was issued in December 2015, and its third report was issued in December 2017. Like the December 2017 report which was issued under Acting Director Mulvaney’s leadership and unlike the two reports issued under Director Cordray’s leadership, the new report does not identify “areas of concern” or “areas of interest” that create risks for consumers and instead takes an objective approach.
The Bureau observes in the report that with the passage of time, it is becoming increasingly difficult to correlate the CARD Act with specific effects in the marketplace that have occurred since the issuance of the Bureau’s most recent biennial report, and even more so, to show a causal relationship between the CARD Act and those effects. For that reason, the Bureau expects future reports to focus on overall conditions in the credit market.
Noteworthy information in the new report includes:
- Most measures of credit card availability, overall and across credit score tiers, have remained stable or decreased slightly, with total outstanding credit card debt nominally above pre-recession levels and delinquency and charge-off rates showing an increase over the last two years.
- Consumers have increased their use of rewards cards, with rewards cards accounting for over 60 percent of all originations. While the new report does not mention any of the areas of concern regarding rewards cards discussed in previous CFPB reports, issuers attempting to respond to the continued demand for reward cards should remain attentive to those concerns.
- Since 2017, issuers have lowered their daily limits on debt collection phone calls for delinquent credit cards and no surveyed issuer allowed calls to continue within a given day once “right party contact” was made. Most issuers now use email and text messages to communicate with delinquent consumers but some only used email reactively such as when a consumer initiated an online conversation or requested that documents be sent by email. In addition, issuers using email typically restricted the number of emails that could be sent to two to three emails per week. While nearly all issuers reported using email, less than two-thirds of those surveyed reported that they sent text messages to communicate with delinquent borrowers.
- Most issuers either prohibit or strictly limit their third-party collectors from using email and text to initiate contact with consumers in post-charge-off collections, although information can be sent via these channels if specifically requested by the consumer. Since the CFPB’s proposed debt collection rule seeks to increase the use of email by third party collectors as a method of communicating with consumers, issuers should be prepared to revisit such prohibitions and limits in light of the CFPB’s proposal.
In a section on innovation, the report discusses innovations in the following areas:
- Account servicing. The report discusses developments to platforms that allow consumers to manage their accounts. These consist of a mobile app feature that allows the consumer to freeze and un-freeze credit and debit cards, AI-powered chatbots to navigate and execute digital account management functions and make transactions, means for a consumer to load credit cards into a digital wallet directly from an issuer’s mobile app, and interactive digital interfaces to assist a consumer in making card payments. Other servicing innovations discussed in the report include flexible payment options for credit card purchases.
- Physical point-of-sale. The report discusses the elimination of signature requirements for EMV chip-card transactions, increasing near-field communication acceptance at the physical POS, and the growth in contactless cards.
- Risk management. The report discusses developments to expand the sources of data used in credit underwriting and new analytical approaches, such as those that involve the application of machine learning to risk scoring. The CFPB notes that while such technological advances may have benefits for consumers and issuers, they could have “unintended side effects” such as the potential for unlawful redlining discrimination or misunderstanding by consumers.
- Fraud risk management. The important developments discussed by the Bureau include the use of machine learning for the purpose of identifying fraudulent transactions.