Consumer advocates pressed the Consumer Financial Protection Bureau on Wednesday to crack down harder on credit card issuers despite recent regulations that largely curtailed hidden fees and predatory practices.
During a field hearing in Chicago following the CFPB's study on the impact of card regulations over the last four years, consumer advocates urged the CFPB to dig further into legal disclosures of credit cards, not just unexpected rate hikes and fees.
Credit card issuers have "terms that are not directly related to fees or pricing but do have an impact on consumers everywhere such as: what are the dispute resolution mechanisms, is there binding or forced arbitration, what choice of law applies to those circumstances, what exactly is the contour of a unilateral modification provision," said Theresa Amato, executive director of Citizen Works, who attended the hearing. "For example, can they just change the terms at any time? And how, and to what extent and why, do we have these kinds of provisions in these agreements that people can't find them easily?"
CFPB Director Richard Cordray said in his opening remarks that the agency was going to look into a handful of card problems that were not entirely addressed through the Credit Card Accountability Responsibility and Disclosure Act of 2009. That included cracking down on issuers that push consumers into add-on products like identity theft protection; fees charged before an account is opened; 0% teaser rates for a certain period of time; and disclosures of online statements, rewards programs and grace periods.
"Although the CARD Act effectively addressed many problematic practices in the market, we do highlight a number of outstanding concerns in our report," said Cordray at the hearing. "We will be examining the risks and benefits of such products and will take action if it appears to be justified."
Some Industry advocates who did not participate in the hearing immediately issued statements cautioning the CFPB about aggressively limiting credit card products through further rulemaking.
"Any new rules will have tremendous unwanted impact on credit unions and their 96 million members, and will make credit union credit card operations unnecessarily more strenuous and costly for both credit unions and their members," said Dan Berger, the president and chief executive of the National Association of Federal Credit Unions, in a letter to the CFPB Wednesday.
The American Bankers Association's chief counsel, Kenneth Clayton, also issued a statement saying while the CARD Act "provided significant benefits" it also created "unintended consequences that have raised contract interest rates and reduced access to credit."
"Regulatory limits on banks' ability to manage risk have created a roadblock for people who are new to credit or who have struggled in the past and want a second chance," Clayton said. "This has a significant, real-world impact not only on those consumers, but also on the broader economy."
The CFPB's study on the Card Act concluded that the overall cost of credit has declined two percentage points since 2008 and disclosures have become easier to understand. But it also added that the upfront annual fees and rates have increased. CFPB officials further argued that the diminished credit availability partly driven by the Card Act was a positive for consumers by restricting issuers from preying on college students who could not afford to rack up debt.
"Our report found that the number of credit card holders under 21 has been cut in half in recent years," Cordray said. "This decrease, which contributes to the decline in available credit, is an intended consequence of the CARD Act and is good news in promoting responsible access to credit."
Those representing the finance industry at the hearing largely praised the CARD Act and the CFPB for shoring up an industry fraught with shady practices in charging exuberant fees and targeting subprime borrowers.
"We do appreciate that the CFPB has proactively implemented the CARD Act," said Mary Dunn, senior vice president and deputy general counsel at the Credit Union National Association. CUNA "supported the objectives of the CARD Act and we do appreciate, as the [CFPB] director reported today, that the Act is working."
The only banker represented on the panel Bill Johnson, chief executive of retail services at Citigroup gave more cautionary support.
"It's our belief that the Credit Card Act has generally improved the credit environment for consumers by increasing transparency to the cost of credit through better more consistent disclosures and in creating consistency in application and assessment of certain fees," Johnson said. However, "it is difficult to discern the impact of the CARD Act on the cost of credit or on the availability of the credit as the data is open to different interpretations and the time period involved was extremely volatile. It will be sometime before we better understand the cyclical and permanent changes that have occurred and more clearly determine the cause and effect."