The CFPB has issued another request for information about the credit card market that identifies significant new issues of CFPB interest.  The request is intended to inform the CFPB’s biennial review of the credit card market mandated by the CARD Act.  Based on its previous biennial reviews, the CFPB issued its first and second reports to Congress in, respectively, October 2013 and December 2015.

On April 13, 2017, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “The CFPB’s RFI and Other Important Recent Credit Card Developments.”  The webinar registration form is available here.

In the current request, the CFPB lists thirteen topics on which it seeks information.  The first four topics concern issues that the CFPB is required by the CARD Act to consider in its review.  The next nine topics involve “areas of further interest” as to which the CFPB has raised numerous new issues.  Since topics and issues identified by the CFPB in previous RFIs and reports were frequently the subject of heightened CFPB supervisory scrutiny and enforcement activity, the topics and issues identified in the new RFI can be expected to receive similar treatment.  Comments in response to the RFI are due on or before June 8, 2017.

The nine topics and some of the CFPB’s related questions are:

  • Deferred interest products.  As a follow up to the CFPB’s previous finding that such products “can pose risks to consumers,” questions include how market trends and practices have evolved since the 2015 report and what areas of risk still remain for consumers.
  • Subprime specialist products.  In its 2015 report, the CFPB highlighted the risk for consumers created by the reliance of certain subprime credit card issuers on fees.  As a follow up, the CFPB asks how the consumer experience of using such cards compares to the experience of consumers with similar credit profiles when using mass market credit cards.
  • Third-party comparison sites.  The CFPB states that it has received indications that some comparison sites generate significant revenue from issuer payments made in exchange for approved applications and that contracts between sites and issuers can influence or determine which (and how) products and choices are presented to consumers.  Questions include the degree to which consumers understand the benefits and risks of using comparison sites and the degree to which existing standards, practices, and disclosures protect consumers from unfair, deceptive, or abusive acts and practices.
  • Innovation.  The CFPB states that its prior review noted the following innovation trends that could substantially impact the credit card market: (1) advancements in payment security and form factor, including the widespread adoption of EMV standards (i.e., standards for cards with computer chips and the technology used to authenticate chip-card transactions) and the possibility of wider adoption of mobile payments, and (2) the trend toward new consumer lending models potentially competing with credit cards, either indirectly through marketing for debt consolidation or directly at point-of-sale.  Questions include the degree to which either of these trends have advanced in expected or unexpected ways in the past two years and which of these trends appears likely to have the greatest impact on the consumer credit card market in the foreseeable future.
  • Secured credit cards.  With the CFPB observing that it has noted indications of increased secured card originations and increasing interest in the product by new market entrants, questions include what is the current state of the secured credit card market and what evidence supports indications of positive consumer outcomes.
  • Online and mobile accounting servicing.  The CFPB states that its prior review found that increasing numbers of consumers are enrolling in issuers’ online and mobile account servicing platforms, have opted out of receiving paper statements, and appear to rarely access their statements online.  This results in such consumers rarely encountering required disclosures.  Questions include the extent to which consumers who are making only minimum payments or have a propensity towards making late payments are not encountering disclosures and what other potential benefits or risks a broader shift to digital account servicing presents to consumers.
  • Rewards products.  Noting that its prior review identified areas of concern regarding the impact of rewards on consumer choice and credit card usage, as well as disclosure practices and program structure, questions include how market trends and practices have changed since the CFPB’s prior review and what areas of risk remain for consumers.
  • Variable interest rates.  Noting that its prior review found that most credit cards now have variable interest rates that will rise when market rates rise (something widely expected to happen soon), questions include the extent to which consumers are aware that their interest rates will increase on outstanding card balances when market rates increase and what practices are issuers using to inform consumers of such rate increases.
  • Debt collection.  Noting that its prior review examined the policies and practice of issuers’ collection practices and debt sales, questions include what changes have been made in such policies and practices since the CFPB’s last review, what drove such changes, and what associated metrics changed as a result.

 

 

The CFPB has issued its July 2016 complaint report which highlights complaints about credit cards and complaints from consumers in Washington and the Seattle metro area.  The CFPB began taking credit card complaints on July 21, 2011, the day on which the CFPB officially opened its doors for business.  In its first and second biennial reports on the credit card market, the CFPB identified deferred interest products and rewards programs as “areas of concern” for consumers.  We previously commented that these “areas of concern” would likely be the subject of heightened CFPB supervisory scrutiny and enforcement activity.  As noted below, in the new complaint report, the CFPB describes deferred interest and rewards programs as issues about which consumers “continue” to complain.  We expect the CFPB’s continued receipt of complaints about such programs to further fuel its supervisory and enforcement activity directed at such programs.

General findings include the following:

  • As of July 1, 2016, the CFPB handled approximately 930,700 complaints nationally, including approximately 24,500 complaints in June 2016.  Debt collection continued to be the most-complained-about financial product or service in June 2016, representing about 29 percent of complaints submitted.  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 67 percent of the complaints submitted in June 2016.
  • Complaints about student loans showed the greatest percentage increase based on a three-month average, increasing about 62 percent from the same time last year (April to June 2015 compared with April to June 2016).  In February 2016, the CFPB began accepting complaints about federal student loans.  Previously, such complaints were directed to the Department of Education. As we noted in blog posts about prior complaint reports issued since April 2016, rather than reflecting an increase in the number of borrowers making student loan complaints, the increase most likely reflects the change in where such complaints are sent.
  • Payday loan complaints showed the greatest percentage decrease based on a three-month average, decreasing about 15 percent from the same time last year (April to June 2015 compared with April to June 2016).  Complaints during those periods decreased from 453 complaints in 2015 to 383 complaints in 2016.  In the March, April, May, and June 2016 complaint reports, payday loan complaints also showed the greatest percentage decrease based on a three-month average.
  • North Dakota, Alaska, and Wyoming experienced the greatest complaint volume increases from the same time last year (April to June 2015 compared with April to June 2016) with increases of, respectively, 40. 31, and 30 percent.
  • Hawaii, Delaware, and Maine experienced the greatest complaint volume decreases from the same time last year (April to June 2015 compared with April to June 2016) with decreases of, respectively, 18, 18, and 14 percent.

Findings regarding credit card complaints include the following:

  • The CFPB has handled approximately 97,100 credit card complaints, representing about 10 percent of total complaints.  Credit cards are the fourth most-complained-about product or service.
  • The most-complained-about issue involved billing disputes.
  • “A number of consumers” complained about how their payments were applied to accounts with multiple balances and different expiration periods that resulted from balance transfers, cash advances, or deferred interest purchases, with consumers frequently indicating they were not adequately informed about how their payments would be applied and were surprised that payments were not applied to promotional or deferred interest balances.
  • Credit card complaints were the subject of the CFPB’s October 2015 complaint report.  In that report, the CFPB included deferred interest programs as the subject of complaints.  In the June 2016 report, the CFPB states that such programs “continued to be the subject of complaints.”  According to the CFPB, “many” consumers complained that the terms of such programs were not adequately explained to them.
  • Although rewards programs were not mentioned in the October 2015 report, the CFPB states in the June 2016 report that consumers “continue to complain about misleading offers” for such programs.  According to the CFPB, consumers “often state that they have difficulty receiving promised benefits, or that the terms and conditions of the programs were not clearly explained when they opened the card.”

Findings regarding complaints from Washington consumers include the following:

  • As of July 1, 2016, approximately 18,900 complaints were submitted by Washington  consumers of which approximately 58 percent(about 11,000) were from Seattle consumers.
  • Mortgages were the most-complained-about product, representing 29 percent of the complaints submitted by Washington and Seattle consumers and 25 percent of complaints submitted by consumers nationally.
  • The percentage of debt collection complaints submitted by Washington and Seattle consumers, 27 and 28 percent, respectively, was similar to the 27 percent national average.

 

 

The CFPB has issued guidance to credit card issuers regarding the resumption of the requirement to submit card agreements to the CFPB on a quarterly basis.  The next submission is due on or before May 2, 2016.

In April 2015, the CFPB issued a final rule that suspended for one year the Truth in Lending Act/Regulation Z requirement for issuers of open-end credit cards to send their credit card agreements to the CFPB quarterly for posting in a public database on the CFPB’s website.  The final rule suspended the submission requirement for the submissions that would otherwise have been due to the CFPB by the first business day on or after April 30, 2015; July 31, 2015; October 31, 2015; and January 31, 2016.  The suspension was intended to reduce the burden on issuers while the CFPB updated its submission system.

By May 2, issuers must submit to the CFPB all credit card agreements offered to the public as of the end of March 2016.  The guidance provides instructions for an issuer to follow in submitting card agreements (which can be done by sending an email to the CFPB with links to the agreements posted on the issuer’s public website.)  After the May 2 deadline, the remaining 2016 submission deadlines are August 1 and October 31.  The guidance also includes answers to a series of questions.

The CFPB also published a “Notice of expiration of suspension” in today’s Federal Register.  The notice indicates that submission instructions are available on the CFPB’s website.

The CFPB has issued its October 2015 complaint report, the fourth in its new series of monthly complaint reports.  The new report highlights credit card complaints and complaints from consumers in the Chicago, Illinois metro area.

General findings include the following:

  • As of October 1, 2015, the CFPB handled approximately 726,000 complaints nationally, including approximately 23,400 complaints in September 2015.  For September 2015, debt collection was the most-complained-about financial product or service, representing about 29 percent of complaints submitted.  (The CFPB stated that this was the 25th consecutive month in which it handled more complaints about debt collection than about any other type of complaint.)  Debt collection complaints, together with complaints about credit reporting and mortgages, collectively represented about 70 percent of complaints submitted in September 2015.
  • Complaints about prepaid cards showed the greatest percentage increase, increasing about 45 percent from the same time last year (July to September 2014 compared with July to September 2015).  (In its Spring 2015 rulemaking agenda, the CFPB indicated that it expected to issue a final prepaid card rule in January 2016.)
  • Payday loan complaints showed the greatest percentage decrease, decreasing 24 percent from the same time last year (July to September 2014 compared with July to September 2015).  Complaints during those periods decreased from 607 complaints in 2014 to 460 complaints in 2015.
  • Idaho, Nebraska and Arkansas experienced the greatest complaint volume increases from the same time last year (July to September 2014 compared with July to September 2015).  The volume of complaints from Idaho, Nebraska and Arkansas increased by, respectively, 59, 44 and 43 percent.  The states with the greatest complaint volume decreases from the same time last year (July to September 2014 compared with July to September 2015) were Delaware, Alaska and New Mexico, with decreases of, respectively, 10, 9 and 5 percent.

Findings regarding credit card complaints include the following:

  • As of October 1, 2015, the CFPB handled approximately 79,500 credit card complaints, representing about 11 percent of total complaints.
  • Confusion over how late fees are assessed was the primary issue raised in many complaints.  Such complaints included claims that issuers had not made clear that payments received after a certain cut-off time would be posted the next day and considered late.
  • Other issues raised in complaints included confusion about deferred interest programs, inability to allocate payments where the consumer has multiple deferred billing promotions or  low rate balances with different expiration dates, lack of clear information about challenging inaccuracies on billing statements, and account closings without the consumer’s knowledge or consent.

Findings regarding complaints from consumers in Chicago include the following:

  • As of October 1, 2015, approximately 21,100 complaints were submitted by Chicago consumers.
  • Mortgages were the most-complained-about product, with mortgage-related complaints representing 27 percent of the complaints submitted by Chicago consumers.
  • Debt collection and credit reporting were, respectively, the second and third most-complained-about financial products in the Chicago metro area.

 

In March 2015, the CFPB issued a request for information on 12 topics relating to the credit card market.  The request set a due date of
May 18, 2015 for comments.

In a notice published in yesterday’s Federal Register, the CFPB has extended the comment period for four of the topics until
June 17, 2015.  The four topics are online disclosures, grace periods, add-on products, and debt collection.  The CFPB states in the notice that it received multiple requests for an extension of the deadline and that an extension as to these four issues is appropriate because they “focus on particular areas of potential policy concern and may require additional time to respond.”

The CFPB has issued a final rule adopting its proposal to suspend for one year the Truth in Lending Act/Regulation Z requirement for issuers of open-end credit cards to send their credit card agreements to the CFPB quarterly for posting in a public database on the CFPB’s website.  The suspension does not affect the TILA/Reg Z requirement for such issuers to post their credit card agreements on their own publicly available websites.  The suspension will be effective immediately upon the rule’s publication in the Federal Register (which is scheduled for
April 17, 2015) and is intended to reduce the burden on issuers while the CFPB works to develop a new automated electronic system that will allow issuers to upload agreements directly to the CFPB’s database.

The final rule suspends the submission requirement for the submissions that would otherwise have been due to the CFPB by the first business day on or after April 30, 2015; July 31, 2015; October 31, 2015; and January 31, 2016.  Issuers will be required to resume submitting credit card agreements beginning with the submission due on the first business day on or after
April 30, 2016.  In lieu of providing new and amended agreements and notice of withdrawn agreements for the April 30, 2016 submission, issuers will be permitted to submit to the CFPB a complete, updated set of agreements offered to the public as of the calendar quarter ending March 31, 2016.

The CFPB has issued a proposal to suspend for one year the Truth in Lending Act/
Regulation Z requirement for issuers of open-end credit cards to send their credit card agreements to the CFPB quarterly for posting in a public database on the CFPB’s website.  The suspension would not affect the TILA/Reg Z requirement for such issuers to post their credit card agreements on their own publicly available websites.  The proposal is scheduled to be published in tomorrow’s Federal Register and comments will be due on or before
March 13, 2015.  The CFPB is proposing that the suspension take effect immediately upon publication of a final rule in the Federal Register.

Pursuant to Reg Z, the quarterly submissions must be sent to the CFPB no later than the first business day on or after January 31, April 30, July 31 and October 31 of each year.  In the supplementary information accompanying the proposal, the CFPB states that it believes the current process, under which issuers submit agreements to the CFPB manually via e-mail, “may be unnecessarily cumbersome for issuers and may make issuers’ own internal tracking of previously submitted agreements difficult.”  The CFPB also observes that the current process for its staff to manually review, catalog, and upload new or revised agreements to the CFPB’s website and remove outdated agreements can extend for several months after the quarterly submission deadlines.

Accordingly, the CFPB indicates that it is working on developing “a more streamlined and automated electronic submission system which would allow issuers to upload agreements directly to the Bureau’s database.”  The CFPB wants the new system to be  less burdensome and easier for issuers to use and enable faster posting of new or revised agreements on the CFPB’s website.

To reduce the burden on issuers while it works on the new system, the CFPB is proposing to suspend the submission requirement for the submissions that would otherwise be due to the CFPB by the first business day on or after April 30, 2015; July 31, 2015; October 31, 2015; and January 31, 2016.  Issuers would resume submitting credit card agreements beginning with the submission due on the first business day on or after April 30, 2016.  In lieu of providing new and amended agreements and notice of withdrawn agreements for the April 30, 2016 submission, issuers would be permitted to submit to the CFPB a complete, updated set of agreements offered to the public as of the calendar quarter ending March 31, 2016.

The CFPB also notes that in addition to not affecting the requirement for issuers to post their credit card agreements on their own publicly available websites, the proposal would not affect the annual submission of college credit agreements and related data required by Reg Z or the biannual submission of credit card pricing and availability information required by TILA.

In addition, during the temporary suspension period, the CFPB plans to collect credit card agreements from the largest card issuers’ public websites as of approximately September 2015 and post them to the CFPB’s online consumer credit card agreements database.  According to the CFPB, “[g]iven the longstanding concentration in the credit card market, the Bureau believes that uploading agreements obtained from a relatively small number of issuers’ websites to the Bureau’s own website is sufficient to provide the agreement terms available to the overwhelming majority of credit card consumers in the U.S. as of the mid-point of the proposed suspension period.”

Today, the CFPB entered a consent order that requires subprime credit card company, Continental Finance Company, LLC (“Continental”), to refund an estimated $2.7 million to consumers who were charged alleged illegal credit card fees. The consent order also imposes a civil penalty on Continental in the amount of $250,000.

In the consent order, the CFPB found that Continental required cardholders to pay fees during the credit card account’s first year that exceeded 25% of the account’s initial credit limit, in violation of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the “CARD Act”). As explained in the consent order, Continental cardholders generally received an initial $300 credit line with a required $75 annual “maintenance and set-up” fee, and certain cardholders were charged an additional $4.95 monthly fee for paper statements. For cardholders charged a paper statement fee, the total amount of fees during the first year exceeded the CARD Act’s 25% limit. The consent order notes that, as of December 2014, Continental charged approximately 98,000 cardholders more than $2,670,000 in paper statement fees.

The CFPB also found that Continental had engaged in certain deceptive acts and practices in violation of the Consumer Financial Protection Act of 2010. First, according to the consent order, Continental stated in its cardholder terms and conditions that a cardholder would be charged a monthly paper statement fee if he or she were to “elect” to receive paper statements. Continental, however, then automatically sent certain cardholders paper billing statements and required those cardholders to pay the monthly paper statement fee.

Second, the consent order states that the Continental cardholder agreements for secured and partially secured cards represented that a cardholder’s security deposit would be held in an FDIC insured financial institution. In reality, the consent order asserts, up to $1.8 million in consumer funds deposited during 2013 were not FDIC insured. The consent order also notes that no customer lost any part of his or her cash security deposit as a result of this limited FDIC insurance coverage.

In addition to requiring the estimated $2.7 million in refunds and imposing the $250,000 civil penalty, the consent order enjoins Continental from committing future violations of the applicable laws, and requires Continental to make the refunds by way of a credit, check, or both, to ensure cardholders are not required to take any action to receive their refunds.

Last December, the CFPB sued a Texas-based company, Union Workers Credit Services, alleging that the company deceived consumers into paying fees to sign up for a “platinum card” that purported to be a general-use credit card but, in actuality, could only be used to buy products from the company. See our prior post discussing the CFPB’s complaint here.

Yesterday, the CFPB requested court approval of a stipulated consent order that would impose monetary penalties on the company in the amount of $70,000, and permanently ban the company from offering any consumer credit products or services. Surprisingly, the consent order does not include any remediation for the company’s cardholders, although the CFPB’s announcement of the consent order states that such cardholders may be eligible for relief from the CFPB’s Civil Penalty Fund in the future.

The consent order also addresses allegations that the company had falsely advertised an affiliation with labor unions. Specifically, the consent order would prohibit the company from making any misrepresentations that it, or any consumer financial product or service it might offer, are associated with labor unions, including, but not limited to, through use of union-related words or images. In addition, the consent order would enjoin the company from violating the Fair Credit Reporting Act, which the CFPB alleged the company had violated by using consumer reports without the consumers’ consent. In light of the fact that the CFPB has permanently banned the company from offering any consumer credit products and services, these additional proscriptions in the consent order seem superfluous.

In its announcement of the consent order, the CFPB claimed that thousands of consumers had filed complaints against the company with law enforcement agencies and the Better Business Bureau, and further noted that the company has been sued by several government authorities, including the New York Attorney General and the U.S. Postal Service.

According to a Bloomberg report by Carter Dougherty, Director Cordray confirmed last week that the CFPB will be looking at credit card rewards programs.  Director Cordray is reported to have indicated that the CFPB will be focusing on rewards program disclosures and considering the need for additional protections.  

The Bloomberg report also indicated that, according to an individual at the CFPB involved in the project, the CFPB’s interest in rewards programs was not triggered by consumer complaints, as complaints related to such programs represent only a small percentage of total credit card complaints received by the CFPB.  This individual is reported to have stated that the CFPB’s interest stems from the view that rewards programs are the primary influence on a consumer’s decision to obtain a particular credit card. 

Director Cordray’s statement is consistent with the report the CFPB issued last month on the impact of the CARD Act.  In that report, the CFPB highlighted credit card rewards programs as an “area of concern” that “may pose risk to consumers and that will warrant further scrutiny by the Bureau.”  The CFPB questioned whether specific actions required to earn rewards and formulas for computing rewards are adequately disclosed and raised concerns about the complexity of program terms involving the value of reward points and redemption and forfeiture rules.