The CFPB published a request for information in yesterday’s Federal Register seeking information to inform its next review of the credit card market.  The CARD Act requires the Bureau to conduct such a review every two years.  The Bureau’s first three reviews were published in October 2013, December 2015, and December 2017.

The RFI contains a series of questions about various issues that are divided into the following topics:

  • Terms of credit card agreements and practices of card issuers
  • Effectiveness of disclosures of terms, fees, and other expenses of credit card plans
  • Adequacy of protections against unfair or deceptive acts or practices relating to credit card plans
  • Cost and availability of consumer credit cards
  • Safety and soundness of credit card issuers
  • Use of risk-based pricing for consumer credit cards
  • Consumer credit card product innovation

Comments must be received on or before May 1, 2019.


In this week’s podcast, we discuss key issues that need to be considered by banks and their merchant partners when entering into credit card co-branding relationships, including defining the scope of exclusivity, the terms of second-look programs, the role of the payment networks, and the handling of consumer data ownership and usage rights.

To listen to the podcast, click here.



The CFPB and New York Attorney General have agreed to a settlement with Sterling Jewelers Inc. of a lawsuit they filed jointly in a New York federal district court alleging federal and state law violations in connection with credit cards issued by Sterling that could only be used to finance purchases made in the company’s stores.  The proposed Stipulated Final Order and Judgment, which requires Sterling to pay a $10 million civil money penalty to the CFPB and a $1 million civil money penalty to the State of New York, represents the second settlement of an enforcement matter announced by the CFPB under Kathy Kraninger’s leadership as CFPB Director.  (In addition to a civil money penalty, the other settlement required the payment of consumer restitution.)

The complaint contains three counts asserted by the CFPB and NYAG alleging unfair or deceptive acts or practices in violation of the Consumer Financial Protection Act based on the following alleged conduct by Sterling:

  • Representing to consumers that they were completing a survey, enrolling in a rewards program, or checking on the amount of credit for which the consumer would qualify when, in fact, either the consumer or a Sterling employee was completing a credit application for the consumer without his or her knowledge or consent
  • Misrepresenting financing terms to consumers, including interest rates, monthly payment amounts, and eligibility for promotional financing
  • Enrolling consumers for payment protection plan insurance (PPPI) without informing them that they were being enrolled or misleading them about what they were signing up for

This alleged conduct is also the basis of two counts alleging state law violations asserted only by the NYAG.

In another count asserted only by the CFPB, Sterling is alleged to have violated TILA and Regulation Z by issuing credit cards to consumers without their knowledge or consent and not in response to an oral or written request for the card.  This alleged TILA/Reg Z violation is also the basis for a count alleging a state law violation asserted only by the NYAG as well as a count alleging a CFPA violation asserted by both the CFPB and NYAG.

In addition to requiring payment of the civil money penalties, the settlement prohibits Sterling from continuing to engage in the alleged unlawful practices and to “maintain policies and procedures related to sales of credit cards and any related add-on products, such as [PPPI], that are reasonably designed to ensure consumer consent is obtained before any such product is sold or issued to a consumer.  Such policies and procedures must include provisions for capturing and retaining consumer signatures and other evidence of consent for such products and services.”  By not requiring consumer restitution, the settlement differs from consent orders entered into by the CFPB under the leadership of former Director Cordray that required restitution by companies that had allegedly enrolled consumers in a product without their consent.

The NY Attorney General and the plaintiffs in Expressions Hair Design v. Schneiderman have filed a joint motion with the U.S. Court of Appeals for the Second Circuit asking the court to vacate the district court’s final judgment in the case, remand with an order to the district court to dismiss the complaint with prejudice, and dismiss the plaintiffs’ appeal as moot.

The complaint in Expressions Hair Design was filed by five merchants and their principals who alleged that New York’s “no credit card surcharge” law was an unconstitutional restriction on speech because it did not allow merchants to tell customers that they are paying more for using credit than for using cash or another payment method.  The district court had entered a judgment declaring the New York law unconstitutional and enjoining its enforcement against the plaintiffs but the Second Circuit reversed, ruling that the law did not implicate the First Amendment because it regulated a pricing practice, not speech.

The U.S. Supreme Court granted the plaintiffs’ petition for certiorari and ruled that the New York law did regulate speech, thereby making it subject to First Amendment scrutiny.  Because the Second Circuit had not considered whether, as a speech regulation, the law survived such scrutiny, the Supreme Court vacated the Second Circuit’s decision and remanded for the Second Circuit to consider that issue.

On remand, the Second Circuit certified to the New York Court of Appeals the question whether a merchant would comply with the New York law if it posted the total dollars-and-cents price charged to credit card customers (rather than posting a single cash price and indicating that an additional amount is added for credit card customers).  The New York court concluded that if a merchant posts its prices and charges lower prices to cash customers, it must post the price charged to credit card customers.  However, while concluding that the law did not allow a merchant to post a single cash price, the New York court determined that it did not prohibit a merchant from using the word “surcharge” or any other words to communicate to customers that the credit card price is higher than the cash price.

The next step in the case would have been for the Second Circuit to decide whether the New York law, as interpreted by the state’s Court of Appeals, was a valid restriction on commercial speech under U.S. Supreme Court precedent.  According to the NY Attorney General’s affirmations accompanying the joint motion, while further briefing was pending, the plaintiffs informed the NY Attorney General that they no longer wished to pursue any of their claims and wanted to dismiss their complaint, with prejudice.  The parties assert that the plaintiffs’ decision to withdraw their complaint moots the case.  Accordingly, they ask the Second Circuit to vacate the district court’s final judgment, instruct the district court to dismiss the complaint with prejudice, and dismiss the plaintiff’s appeal as moot.

The NY Attorney General’s affirmations also state that another factor weighing in favor of vacatur is that the plaintiffs’ decision to withdraw their complaint “should not leave intact a final judgment that declares a duly enacted state statute unconstitutional and enjoins the State and several District Attorneys from enforcing the statute against plaintiffs.”  As this statement suggests, once the district court’s decision is vacated, the NY Attorney General would be free to enforce the New York law against the plaintiffs–and other merchants–as interpreted by the New York Court of Appeals.  In other words, while a New York merchant can lawfully charge more to credit card than cash customers and label the differential amount a “surcharge,” the merchant would violate New York law if it only posted the cash price without also posting the higher price charged to credit card customers.


The New York Court of Appeals has issued an opinion in Expressions Hair Design v. Schneiderman interpreting the state’s law that prohibits merchants from imposing a surcharge on credit card purchases (Section 518 of the state’s General Business Law). The court concluded that if a merchant posts its prices and charges lower prices to cash customers, it must post the price charged to credit card customers. As a result, the court also concluded that the law prohibits a merchant from using a “single-sticker-price” scheme in which a merchant posts a single cash price for its goods and services but indicates an additional amount is added for credit card customers.

The opinion was issued in answer to the following question certified to the NY court by the U.S. Court of Appeals for the Second Circuit: “Does a merchant comply with [Section 518] so long as the merchant posts the total dollars-and-cents price charged to credit-card users?” The Second Circuit certified the question following the U.S. Supreme Court’s decision last year in Expressions Hair Design and remand of the case to the Second Circuit. The Supreme Court ruled that Section 518 regulates speech, thereby making it subject to First Amendment scrutiny. The Second Circuit had initially concluded that Section 518 did not violate the First Amendment because it regulates only pricing, not speech. The Supreme Court vacated that decision and because the Second Circuit had not considered whether, as a speech regulation, Section 518 survived First Amendment scrutiny, remanded for the Second Circuit to do so.

The parties in Expressions Hair Design agreed that Section 518 does not prohibit differential pricing in which a merchant charges more to customers who pay by credit card. However, the plaintiffs, five merchants and their owners, sought to use a “single-sticker-price” scheme in which a merchant posts a single cash price for its goods and services but indicates an additional amount is added for credit card customers rather than a “dual-price” scheme in which a merchant posts two different prices—one for credit card customers and one for cash customers. The plaintiffs alleged that by prohibiting their use of a “single-sticker-price” scheme or restricting how they describe the price differential in a “dual-price” scheme, Section 518 violates the First Amendment because it regulates how they communicate their prices. The NY Court of Appeals concluded that although Section 518 does not allow use of a “single-sticker-price” scheme, it does not prohibit a merchant from using the word “surcharge” or any other words to communicate to customers that the credit card price is higher than the cash price.

The Second Circuit will now need to determine whether Section 518, as interpreted by the NY Court of Appeals, is a valid restriction on commercial speech under Supreme Court precedent. Such precedent is discussed in the Second Circuit’s opinion certifying the Section 518 question to the NY court. The Second Circuit suggested that if Section 518 were to be understood to compel the disclosure of an item’s credit card price alongside its cash price, it might properly be analyzed under Supreme Court precedent that applies a lenient standard of review to laws that require commercial entities to make certain disclosures to prevent consumer deception or confusion.

The CFPB’s newly-released Summer 2018 edition of Supervisory Highlights represents the CFPB’s first Supervisory Highlights report covering supervisory activities conducted under Acting Director Mick Mulvaney’s leadership.  The Bureau’s most recent prior Supervisory Highlights report was its Summer 2017 edition, which was issued in September 2017.

On October 10, 2018, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “Key Takeaways from the CFPB’s Summer 2018 Supervisory Highlights.”  The webinar registration form is available here.

Noticeably absent from the new report’s introduction and the Bureau’s press release about the report are statements touting the amount of restitution payments that resulted from supervisory resolutions or the amounts of consumer remediation or civil money penalties resulting from public enforcement actions connected to recent supervisory activities.  (The report does, however, include summaries of the terms of two consent orders entered into by the Bureau, including its settlement with Triton Management Group, Inc., a small-dollar lender, regarding the Bureau’s allegations that Triton had violated the Truth in Lending Act and the CFPA’s UDAAP prohibition by underdisclosing the finance charge on auto title pledges entered into with consumers.)

The report confirms that the Bureau’s supervisory activities have continued without significant change under its new leadership.  It includes the following information:

Automobile loan servicing.  The report indicates that in examinations of auto loan servicing activities, Bureau examiners focus primarily on whether servicers have engaged in unfair, deceptive, or abusive acts or practices prohibited by the CFPA.  It discusses instances observed by examiners in which servicers had sent billing statements to consumers who had experienced a total vehicle loss showing that the insurance proceeds had been applied to the loan so that the loan was paid ahead and the next payment was due months or years in the future.  The CFPB found the due dates in these statements to be inconsistent with the terms of the consumers’ notes which required the insurance proceeds to be applied to the loans as a one-time payment and any remaining balance to be collected according to the consumers’ regular payment schedules.  According to the CFPB, sending such statements was a deceptive practice.  The CFPB indicates that in response to the examination findings, servicers are sending billing statements that accurately reflect the account status after applying insurance proceeds.

The Bureau also found instances where servicers, due to incorrect account coding or the failure of their representatives to timely cancel the repossession, had repossessed vehicles after the repossession should have been cancelled because the consumer had entered into an extension agreement or made a payment.  This was found to be an unfair practice.  The CFPB indicates that in response to the examination findings, servicers are stopping the practice, reviewing the accounts of affected consumers, and removing or remediating all repossession-related fees.

Credit cards.  The report indicates that in examinations of the credit card account management operations of supervised entities, Bureau examiners typically assess advertising and marketing, account origination, account servicing, payments and periodic statements, dispute resolution, and the marketing, sale and servicing of add-on products.  The Bureau found instances where entities failed to properly re-evaluate credit card accounts for APR reductions in accordance with Regulation Z requirements where the APRs on the accounts had previously been increased. The report indicates that the issuers have undertaken, or developed plans to undertake, remedial and corrective actions in response to the examination findings.

Debt collection.  In examinations of larger participants, Bureau examiners found instances where debt collectors, before engaging in further collection activities as to consumers from whom they had received written debt validation disputes, had routinely failed to mail debt verifications to such consumers. The Bureau indicates that in response to the examination findings, the collectors are revising their debt validation procedures and practices to ensure that they obtain appropriate verifications when requested and mail them to consumers before engaging in further collection activities.

Mortgage servicing.  The report indicates that in examinations of servicers, Bureau examiners focus on the loss mitigation process and, in particular, on how servicers handle trial modifications where consumers are paying as agreed. In such examinations, the Bureau found unfair acts or practices relating to the conversion of trial modifications to permanent status and the initiation of foreclosures after consumers accepted loss mitigation offers.  In reviewing the practices of servicers with policies providing for permanent modifications of loans if consumers made four timely trial modification payments, the Bureau found that for nearly 300 consumers who successfully completed the trial modification, the servicers delayed processing the permanent modification for more than 30 days.  During these delays, consumers accrued interest and fees that would not have been accrued if the permanent modification had been processed.  The servicers did not remediate all of the affected consumers ,did not have policies or procedures for remediating consumers in such circumstances, and attributed the modification delays to insufficient staffing.  The Bureau indicates that in response to the examination findings, the servicers are fully remediating affected consumers and developing and implementing policies and procedures to timely convert trial modifications to permanent modifications where the consumers have met the trial modification conditions.

The Bureau also identified instances in which servicers, due to errors in their systems, had engaged in unfair acts or practices by charging consumers amounts not authorized by modification agreements or mortgage notes.  The Bureau indicates that in response to the examination findings, the servicers are remediating affected consumers (presumably by refunding or credit the unauthorized amounts) and correcting loan modification terms in their systems.

With regard to foreclosure practices, Bureau examiners found instances where mortgage servicers had approved borrowers for a loss mitigation option on a non-primary residence and, despite representing to borrowers that they would not initiate foreclosure if the borrower accepted loss mitigation offers in writing or by phone by a specified date, initiated foreclosures even if the borrowers had called or written to accept the loss mitigation offers by that date.  The Bureau identified this as a deceptive act or practice. The Bureau also found instances where borrowers who had submitted complete loss mitigation applications less than 37 days from a scheduled foreclosure sale date were sent a notice by their servicer indicating that their application was complete and stating that the servicer would notify the borrowers of their decision on the applications in writing within 30 days.  However, after sending these notices, the servicers conducted the scheduled foreclosure sales without making a decision on the borrowers’ loss mitigation application.  Interestingly, while the Bureau did not find that this conduct amounted to a “legal violation,” it did find that it could pose a risk of a deceptive practice.

Payday/title lending.  Bureau examiners identified instances of payday lenders engaging in deceptive acts or practices by representing in collection letters that “they will, or may have no choice but to, repossess consumers’ vehicles if the consumers fail to make payments or contact the entities.”  The CFPB observed that such representations were made “despite the fact that these entities did not have business relationships with any party to repossess vehicles and, as a general matter, did not repossess vehicles.”  The Bureau indicates that in response to the examination findings, these entities are ensuring that their collection letters do not contain deceptive content.  Bureau examiners also observed instances where lenders had used debit card numbers or Automated Clearing House (ACH) credentials that consumers had not validly authorized them to use to debit funds in connection with a defaulted single-payment or installment loan.  According to the Bureau, when lenders’ attempts to initiate electronic fund transfers (EFTs) using debit card numbers or ACH credentials that a borrower had identified on authorization forms executed in connection with the defaulted loan were unsuccessful, the lenders would then seek to collect the entire loan balance via EFTs using debit card numbers or ACH credentials that the borrower had supplied to the lenders for other purposes, such as when obtaining other loans or making one-time payments on other loans or the loan at issue.  The Bureau found this to be an unfair act or practice.  With regard to loans for which the consumer had entered into preauthorized EFTs to recur at substantially regular intervals, the Bureau found this conduct to also violate the Regulation E requirement that preauthorized EFTs from a consumer’s account be authorized by a writing signed or similarly authenticated by the consumer.  The Bureau indicates that in response to the examination findings, the lenders are ceasing the violations, remediating borrowers impacted by the invalid EFTs, and revising loan agreement templates and ACH authorization forms.

Small business lending. The Bureau states that in 2016 and 2017, it “began conducting supervision work to assess ECOA compliance in institutions’ small business lending product lines, focusing in particular on the risks of an ECOA violation in underwriting, pricing, and redlining.”  It also states that it “anticipates an ongoing dialogue with supervised institutions and other stakeholders as the Bureau moves forward with supervision work in small business lending.”  In the course of conducting ECOA small business lending reviews, Bureau examiners found instances where financial institutions had “effectively managed the risks of an ECOA violation in their small business lending programs,” with the examiners observing that “the board of directors and management maintained active oversight over the institutions’ compliance management system (CMS) framework.  Institutions developed and implemented comprehensive risk-focused policies and procedures for small business lending originations and actively addressed the risks of an ECOA violation by conducting periodic reviews of small business lending policies and procedures and by revising those policies and procedures as necessary.”  The Bureau adds that “[e]xaminations also observed that one or more institutions maintained a record of policy and procedure updates to ensure that they were kept current.”  With regard to self-monitoring, Bureau examiners found that institutions had “implemented small business lending monitoring programs and conducted semi-annual ECOA risk assessments that include assessments of small business lending.  In addition, one or more institutions actively monitored pricing-exception practices and volume through a committee.”  When the examinations included file reviews of manual underwriting overrides at one or more institutions, Bureau examiners “found that credit decisions made by the institutions were consistent with the requirements of ECOA, and thus the examinations did not find any violations of ECOA.”  The only negative findings made by Bureau examiners involved instances where institutions had collected and maintained (in useable form) only limited data on small business lending decisions.  The Bureau states that “[l]imited availability of data could impede an institution’s ability to monitor and test for the risks of ECOA violations through statistical analyses.”

Supervision program developments.  The report discusses the March 2018 mortgage servicing final rule and the May 2018 amendments to the TILA-RESPA integrated disclosure rule.  With regard to fair lending developments, it discusses recent HMDA-related developments and small business lending review procedures.  With regard to small business lending, the Bureau highlights that its reviews include a fair lending assessment of an institution’s compliance management system (CMS) related to small business lending and that CMS reviews include assessments of the institution’s board and management oversight, compliance program (policies and procedures, training, monitoring and/or audit, and complaint response), and service provider oversight.  The CFPB indicates that in some ECOA small business lending reviews, examiners may look at an institution’s fair lending risks and controls related to origination or pricing of small business lending products, including a geographic distribution analysis of small business loan applications, originations, loan officers, or marketing and outreach, in order to assess potential redlining risk.  It further indicates that such reviews may include statistical analysis of lending data in order to identify fair lending risks and appropriate areas of focus during the examination.  The Bureau states that “[n]otably, statistical analysis is only one factor taken into account by examination teams that review small business lending for ECOA compliance. Reviews typically include other methodologies to assess compliance, including policy and procedure reviews, interviews with management and staff, and reviews of individual loan files.”

In the CFPB’s RFI on its supervision program, one of the topics on which the CFPB sought comment is the usefulness of Supervisory Highlights to share findings and promote transparency.  The new report indicates that the Bureau “expects the publication of Supervisory Highlights will continue to aid Bureau-supervised entities in their efforts to comply with Federal consumer financial law.”  Presumably, this means that we will now again be seeing new editions of Supervisory Highlights on a regular basis.


I am pleased to announce that Chris Ford, an attorney who has led some of the country’s largest and most innovative Fintech and payment systems transactions, has joined Ballard Spahr as a partner in the firm’s Consumer Financial Services Group.  He will be based in the firm’s Washington, D.C. office.

Chris advises clients on large-scale commercial transactions, particularly those involving financial services, payments, technology, and outsourcing.  He also provides strategic counsel to clients on co-brand and private-label card transactions, card processing and network-related deals, merchant acquisition, and information technology and business process outsourcing.

Chris’ clients include Fortune 100 companies, merchants, and financial institutions.  His work includes representing one of the world’s largest financial institutions in its global, retail, commercial, and small business credit card processing agreements; assisting a global finance company in the issuance of a credit card in the United States; assisting one of the largest merchant-acquiring companies in a strategic partnership with a major credit card issuer; and advising a major grocery retailer in its merchant-acquiring and payment processing arrangements.

To learn more about our new colleague, read our firm’s announcement.

The CFPB has issued a report focusing on end-of-year credit card borrowing and repayment of credit card balances in the following year.  The report is based on data from the Bureau’s Consumer Credit Panel, a nationally-representative sample of approximately five million de-identified credit records maintained by one of the three nationwide credit reporting companies.

The report explores how credit card borrowing evolves during and after the annual November/December peak in consumer spending, how quickly these balances are repaid in subsequent months, and how the year-end period of borrowing may correlate with financial distress.

The report’s key findings include:

  • The year-end rise in consumer debt is most pronounced in general purpose credit card debt and retail store card debt.  General purpose credit card balances rise nearly 4 percent from their October baseline as compared with retail store card balances which rise 8 percent increase from their October baseline.  In contrast, auto loans and home equity credit lines do not exhibit similar seasonality.  The CFPB observes that to the extent the consumers who take on new credit card debt during the holiday season are the same consumers who repay that debt shortly thereafter in the following year, it is an indication that, on average, consumers may use year-end credit card borrowing as relatively short-term financing.
  • The seasonality in borrowing on general purpose credit cards is most pronounced for consumers with prime and superprime credit scores. In contrast, general purpose credit card balances for consumers with subprime credit scores exhibit relatively little seasonality.  The CFPB observes that this difference is at least partially attributable to higher card utilization rates of consumers with subprime credit scores.
  • Delinquency rates on credit cards rise during and after the holiday season, with the seasonality in delinquencies apparently driven by consumers with subprime credit scores.  These patterns may indicate financial distress among some credit card borrowers at the end of the year.  The CFPB observes that the decline in delinquencies that begins in February and accelerates in March may be attributable to consumers’ receipt of tax refunds and the use of such refunds to pay down debt.

The CFPB released its sixth annual report to Congress on college credit card agreements.  The annual report is mandated by the CARD Act.

The CARD Act requires mandatory reporting to the CFPB by card issuers on agreements with institutions of higher learning or certain affiliated organizations (such as alumni associations).  The information in the report is current as of the end of 2016.

Beginning with its 2014 report, the CFPB’s annual report consolidated its CARD Act-required reporting on college credit card agreements with “other information on financial products offered or marketed to students collected via our various market monitoring tools.”  The CFPB had stated that this consolidation was intended to “further the Bureau’s mandate in a manner consistent with our goal to focus holistically on the suite of issues facing student financial consumers beyond directly financing the costs of their education.”  For that reason, the CFPB “reframed” its 2016 report by titling it an annual report on “Student banking” and using one section of the report to discuss student debit cards and bank accounts and another section to discuss college credit cards.  The 2017 report, which revives the title “College credit card agreements,” abandons that practice and discusses only college credit card agreements.

The CFPB’s findings based on the agreements and related information that issuers are required to submit annually to the CFPB include:

  • Continuing a trend that began in 2009, the number of college credit card agreements, the total number of associated credit card accounts and the amount paid by issuers to schools and affiliated organizations declined again in 2016.
  • Agreements between issuers and alumni associations remained the dominant agreements and alumni associations increased their share of issuer payments.
  • The largest agreements by each of the three metrics of agreement size—year-end open accounts, new accounts, and payment volume—continued to increase their share of the overall market, with the ten most lucrative agreements representing 43% of payments by all issuers.

For several years, the CFPB has used its annual report as an opportunity to take schools to task for not meeting their obligation under the CARD Act to publicly disclose their college credit card marketing agreements (which, pursuant to the Official Commentary to Regulation Z, can be fulfilled by either posting the agreements on a school’s website or by making the agreements available on request, as long as the procedure for requesting the documents is reasonable and free of cost.)  The new report makes no mention of this issue.


The CFPB issued its third biennial report on the credit card market last week.  The report represents the first major report issued by the CFPB since former Director Cordray’s resignation and President Trump’s designation of Mick Mulvaney as Acting Director.

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 and its second report was issued in December 2015.  Unlike those reports, the new report does not identify “areas of concern” or “areas of interest” that create risks for consumers and instead takes an objective approach to the information presented.

Also unlike the prior reports, the new report does not begin with an introductory message replete with editorializing similar to the “Message from Director Corday” that began the prior reports.  In addition, the CFPB’s press release announcing the new report, unlike the CFPB press releases announcing the prior reports, also takes an objective approach by describing several of the report’s key findings and eliminating “sensationalized” headlines or judgmental language suggesting improper industry conduct.  Indeed, rather than adopting a tone that is critical of industry, the CFPB observes in the “Final Note” of the report’s Executive Summary that the quantitative and qualitative indicators discussed in the report “generally suggest a positive picture for consumers in the credit card market” and states that this proposition is supported by direct consumer surveys such J.D. Power’s report “that in 2017 consumers reported their highest level of satisfaction with this market to date.”

The CFPB’s findings include:

  • Most measures of credit card availability have remained stable or increased since the 2015 report, with total outstanding credit card debt now at pre-recession levels and delinquency and charge-off rates showing an increase over the last year.
  • The importance of private label cards and secured credit cards in the non-prime market is growing, with issuers appearing to put increased weight on credit line management as a risk control mechanism.
  • Overall, since 2015, issuers have lowered their daily limits on debt collection phone calls for delinquent credit cards and appear to have pursued more internal collection activity either through in-house or first-party collectors rather than third party collectors, with a majority of issuers now supplementing their internal collection strategy with email use.  Fewer issuers sold debt in 2015 and 2016 than in prior years, with those continuing to sell debts planning to increase their sales of charged-off debt in 2017.
  • More consumers are now engaging with financial products, including credit cards, through digital portals on computers and mobile devices and shop for, originate, and service credit card accounts digitally.

Among the “areas of concern” identified in the 2013 and 2015 CARD Act reports were rewards programs and deferred interest products.  With regard to rewards programs, while the new report notes that the 2015 report “identified a number of area of potential concern regarding rewards card practices” and  “a number of these issues persist,” it states that “progress has been made by others.”  Referencing a letter to the CFPB from the American Bankers Association setting forth principles and practices “that would address at least some of those concerns” if adopted by rewards-cards issuing banks, the CFPB commented that it was “encouraged by efforts to improve the clarity and user-friendliness of rewards cards products and disclosures, and continues to monitor rewards programs closely for opportunities to improve consumer experiences and outcomes.”

With regard to deferred interest, although the CFPB notes in the new report that deferred interest promotions benefit consumers who pay their promotional balance in full within the promotional period but “are more costly for consumers who do not,” the CFPB does not raise concerns about consumers’ understanding of these products as it did in prior reports.  Consumer concerns are only referenced in a footnote in which the CFPB states that although industry contends that deferred interest promotions provide value to consumers, consumer advocates have called for such promotions to be banned or substantially restructured.

In the 2015 report, the CFPB raised various concerns about subprime credit cards, such as their fee structure and the education level of the consumers to whom they were marketed.  Rather than highlighting risks presented by subprime cards, the CFPB describes such cards in the new report as products that “offer [consumers who lack prime credit scores] the dual possibility of access to the credit card market as well as an avenue for building or rehabilitating credit record when timely payments are made.”  The report reviews the products offered by “subprime specialists,” a term that covers “card-issuing banks as well as non-bank program managers that may play a role in designing and servicing credit card products in this segment of the market.”  The CFPB looks at product structure and issuer practices for unsecured general purpose cards, secured general purpose cards, and private label cards, as well as consumer experiences and outcomes in the subprime market.  Also indicative of the CFPB’s change in tone is the following statement in its discussion of secured cards:

“The major risk to consumers using secured credit cards is that of severe delinquency or default.  A consumer who fails to make timely payments on their secured card could find that their attempt to rehabilitate or establish their credit record has failed.  However, the credit reporting consequences of secured card failure are generally no different than for any other credit card.  This risk is the risk all consumers take when they utilize card credit.”

While referring to the issue as a “challenge” rather than an “area of interest or concern,” the CFPB does raise a concern about disclosures in its discussion of digital account servicing, meaning online account servicing portals and smart-phone based account servicing applications.  The CFPB comments that while digital platforms that allow consumers to access and manage their accounts can have clear benefits for consumers and issuers, they “may also present some challenges.”  The CFPB observes that consumers who do not receive paper statements but also do not digitally access their statements, “may not see required disclosures containing certain account information, such as the full picture of the fee burden on an account, or the expected cost of carrying balances over certain lengths of time.”  Noting that the 2015 report found that only 10% of active accounts actually opened an online statement in a given quarter, the CFPB states that, combined with the increasing share of accounts opting out of paper statements, “this means that, for a significant and growing portion of accounts, the account holder does not see account statements at all.”

The new report includes a detailed discussion of third-party credit card comparison (TPC) websites that allow consumers to obtain information about multiple cards.  For purposes of its report, the CFPB looked at TPC sites that are operated by a third party that is not a credit card issuer, are regularly and frequently updated to reflect new product information, display different information in response to user input, and link directly to issuers’ product application sites.  Among the topics discussed in the report are how a consumer interacts with a TPC, the nature of the information provided by a TPC site, and TPC site business practices such as revenue agreements and models, how the cards shown to consumers are selected and presented, and editorial independence.  The report also includes a section on product innovation that discusses how adoption of the Europay, MasterCard, and Visa standard (i.e. “chip” cards) has progressed in the United States, the types of mobile wallets that have seen growth in recent years, developments in the personal installment loan market that have resulted from increasing participation by fintech and other non-bank lenders, and  developments in closed-end point-of-sale lending products.

The report’s objective approach is certainly a welcome change.  The  CFPB’s general satisfaction with the industry, however, does not mean that it will cease to hold issuers responsible for compliance with the consumer financial protection laws, including the Truth in Lending Act and Regulation Z.  While CFPB enforcement activity is likely to decrease under the Trump administration, CFPB supervisory activity is not expected to change significantly.

In addition, Democratic state AGs have indicated that they intend to fill any vacuum created by a less aggressive CFPB approach to enforcement.  State AGs and regulators have direct enforcement authority under various federal consumer protection statutes and, pursuant to Section 1042 of the Consumer Financial Protection Act, can bring civil actions to enforce the provisions of the CFPA, most notably its prohibition of unfair, deceptive or abusive acts or practices.

On February 7, 2018, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr attorneys will hold a webinar: Who Will Fill the Void Left Behind by the CFPB?  Click here to register.