The CFPB has issued a new request for information (RFI) to inform its biennial review of the credit card market mandated by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Comments on the RFI must be received by April 24, 2023.
The CFPB’s first CARD Act report was published in October 2013, its second report was published in December 2015, its third report was published in December 2017, its fourth report was published in August 2019, and its fifth report was published in September 2021.
Because the CARD Act requires the CFPB to consider specific topics in its biennial reviews, the RFIs that the CFPB has issued in connection with those reviews have contained similar questions. Nevertheless, how the CFPB frames those questions in a particular RFI can provide some insight into which issues are then of particular interest to the CFPB. In the new RFI, the CFPB seeks comment on the following issues that were not raised in its previous RFI:
Terms of credit card agreements and issuer practices. The CFPB asks:
- What are the terms of, practices related to, and prevalence of emerging supplementary card features (such as credit card installment plans).
- Have changes in issuers’ marketing practices since the CFPB’s 2021 report impacted consumers’ ability to comparison shop and, if so, in what ways.
- What practices of issuers may uniquely affect special populations (such as servicemembers and their dependents), low- and moderate-income consumers, older Americans, and students); what are the effects of protections specific to special populations (for example, the Servicemembers Civil Relief Act or the Military Lending Act); and how are these changing and what, if any, trends are evolving.
- How are the terms of, and practices related to, partnerships between issuers and merchant partners (such as hospitality, airline, healthcare, and/or retail companies) evolving.
Safety and soundness of credit card issuers. The CFPB asks:
- How have current dynamics related to funding sources (such as asset-backed securities or deposits) for credit card receivables affected issuers’ profitability and lending operations
- What changes, if any, in capital markets for credit cards have there been since the last biennial report.
- How do capital requirements for different types of institutions affect competition in the credit card market or consumers’ access to and cost of credit.
- How might these trends positively or negatively impact consumers.
Innovation. The CFPB asks:
- How is competition in the credit card market changing; how has the CARD Act (positively or negatively) impacted competition between issuers; and how, if at all, do these changes and impacts relate to the cost or availability of consumer credit cards.
- What barriers to entry, if any, exist in the consumer credit market; what obstacles may smaller financial institutions face when launching a credit card product; how are these impediments changing and what, if any, trends are evolving; to what extent are financial institutions adopting “credit card-as-a service” offerings; and how might these changes affect competition, promote innovation, or introduce risk, if at all.
- How do innovations by firms offering other consumer financial product and services (such as buy-now-pay-later credit, mobile payments, or non-card point-of-sale loans) compete with credit cards, and to what extent do consumers view them as effective alternatives to or substitutes for credit cards.
In asking questions about funding sources, capital marketing, and capital requirements under the topic of “safety and soundness” as well as questions about competition in the credit card market under the topic of “innovation,” the CFPB appears to be continuing a trend under Director Chopra’s leadership of delving into issues that are not properly within its purview.
With regard to competition, we have previously questioned the CFPB’s authority to address competition issues in markets for consumer financial products and services. In addition, the CFPB’s questions about competition do not appear to be relevant to the CARD Act’s mandate that the CFPB review whether or not, and to what extent, implementation of the CARD Act has affected credit card product innovation.
Similarly, funding sources, capital marketing, and capital requirements do not appear to be topics that fall within the CARD Act’s mandate that the CFPB review whether or not, and to what extent, implementation of the CARD Act has affected the safety and soundness of credit card issuers. Indeed, in its 2021 CARD Act report, the CFPB noted that “[w]hile this report presents information which may be relevant to assessments of safety and soundness issues relating to credit card issuers, the Bureau does not produce any further assessments on this subject in this report.” As the CFPB acknowledged, “[t]he prudential regulators…have the primary responsibility for monitoring the safety and soundness of financial institutions.”
In its Fall 2022 rulemaking agenda, the CFPB indicated that it is considering whether to propose amendments to the Regulation Z rules on credit card penalty fees that implement the CARD Act, including the penalty fees safe harbors, and gave a January 2023 estimate for issuance of a Notice of Proposed Rulemaking. In June 2022, the CFPB issued an Advance Notice of Proposed Rulemaking regarding credit card late fees. While the RFI says nothing about late fees, and to date no proposals have been issued by the CFPB, many observers are expecting the CFPB to propose a substantial reduction in the amounts of the penalty fee safe harbors in the near future.