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The CARD Act Conference: What We Learned

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Last month, one year after the date that many CARD Act provisions took effect, the CFPB held a conference on the credit card marketplace. Credit card issuers, credit rating agencies, academics, consumer groups, and federal agencies were all represented. Eight attendees delivered presentations providing a time series look at market changes.

The CFPB has summarized what we learned at the conference with these CARD Act Conference Takeaways. Click through for more detail and to see the actual conference presentations, but here are the basics:

  1. Prior to the CARD Act, there was a wide gap between the initial stated interest rate for a credit card and the actual cost of the credit over time. The CARD Act curtailed certain practices in the credit card industry that created unanticipated costs for consumers. The result has been more transparent pricing: while front end pricing has increased, the overall cost of credit has not.
  2. In 2010, industry income as a percentage of card balances was higher than pre-CARD Act levels. This reflects primarily an improving economy and resulting lower loss rates. That in turn has enabled issuers to release some loss reserves they had set aside to cover expected losses.
  3. In 2007, issuers heavily marketed credit cards as a way to acquire new customers, which included marketing to people with lower credit scores. The recession led issuers to pull back on marketing and raise their credit standards. In 2010, they began to relax again, but standards are still tighter and marketing less prevalent than they were in 2007.
  4. While the cost of credit has remained constant, the use of it has decreased. Credit card debt has dropped by a total of 15 percent over the last two years. The decrease is attributable largely to bad-debt write-offs by card issuers and a marked reduction in new balance creation.

If you’re looking for more details, take a look at our full write-up of the conference findings.

David Silberman is the Assistant Director for Card Markets.

Asking the public about the CARD Act

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Yesterday’s CARD Act conference commemorated the first anniversary of the day when many provisions of the Credit CARD Act went into effect. Industry executives, leading academics, consumer advocates, government officials, and the CFPB convened to review changes in the card industry since the Act. In conjunction with the conference, the CFPB commissioned a survey to explore how people perceive some of the changes brought about by the Act.

Our survey showed that:

  • 60% of cardholders find their monthly statements easier to read and understand
  • 60% feel that the terms on their credit card are clearer than they used to be
  • Among those who are at least somewhat familiar with the CARD Act, 57% believe the Act has been personally beneficial to them

In addition, 32% of people who noticed a change in their statements reported that they changed their behavior by increasing the amount of their monthly payment or by limiting their use of credit cards.

Another important insight is that there is still work to be done to enhance consumer understanding of their credit cards. For example, 80% of all cardholders who carry a balance from month to month are able to report their interest rate, but 35% of them are unable to say how much interest they paid. The survey also showed that consumers who know their rates or fees are more satisfied than those who do not know this information.

Part of the CFPB’s role is to make sure consumers have clear information on costs and risks so they can make the best decisions for themselves and their families. We are paying close attention to the level of consumer understanding.

One other thing we’re especially excited about is that this is the first survey the CFPB has ever commissioned, and we’ve made the raw results available to the public to download in CSV and TXT (tab delimited) formats. This detailed data is available on our Credit CARD Act page along with more information about the Credit CARD Act itself and additional infographics like the one above. I encourage you to take a look.

Learn more about our survey methodology.

Marla Blow is the CFPB Deputy Assistant Director for Card Markets.

The Credit CARD Act Turns One

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One year ago many provisions of the Credit CARD Act took effect. To mark this occasion, the CFPB held a conference to examine what has happened in the past year in the credit card market. Here’s what we learned.

First, the law has brought about some important changes for consumers. For example, a study prepared by the Office of the Comptroller of the Currency indicates that prior to the Act, card issuers increased the interest rate on approximately 15 percent of accounts each year. Now, only about 2 percent of accounts experience rate increases. The amount of late fees has dropped by more than 50 percent since the Act was enacted, and overlimit fees have essentially disappeared.

There is another side of the coin. To achieve greater transparency and eliminate more hidden costs, the initial interest rates today appear to be higher than they were a year or two ago. In other words, the cost is clearer up front. Significantly, the total amount consumers are paying for their credit cards is no higher, on average, than it was one, two, or three years ago.

During the recession, credit card issuers tightened their standards for approving an application and reduced the amount of credit they made available. Over the past year, as the economy has improved, many credit card issuers have loosened their criteria for signing up new customers. Nonetheless, credit standards still appear to be tighter than they were two or three years ago. We do not yet know what the “new normal” will look like or whether less creditworthy consumers will continue to find it more difficult to obtain a credit card.

There are important challenges facing the CFPB when it comes to credit cards. We need to be vigilant in assuring that card issuers live up to their legal obligations and do not try to find loopholes to exploit. We also know that there’s more work to be done to make sure that consumers are able to understand the costs, benefits, and risks of different cards, and to compare them straight up. We need to continue to deepen our understanding of the consequences of the CARD Act for consumers and the credit card market.

David Silberman is the CFPB Assistant Director for Card Markets.

Professor Warren Speaks to Consumers Union

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This afternoon, Professor Warren spoke at an event celebrating the 75th anniversary of Consumers Union. During her speech, she spoke about the CFPB’s emphasis on clear prices and risks, which will help consumers make the choices that are best for themselves and their families. She also announced a conference one week from today on the first anniversary of the date that most provisions of the Credit CARD Act took effect.

Below is an excerpt from her remarks:

The fine print and the ability to change products and prices in subtle and not-so-subtle ways creates layers of complexity that stand in the way of direct, apples-to-apples comparisons among credit products. The kind of comparisons that drive competition around lower prices and better features for cameras and toasters is too often missing for credit cards and checking accounts. How does a consumer compare two credit products based on an advertisement when the true cost won’t be clear until months later? And how does a consumer draw comparisons when there are so many different components of cost in each product? How does a consumer keep track of the continual evolution of the products being offered across the entire market by different providers? And, finally, how does a consumer draw comparisons among products without knowing the nature or likelihood of changes that are likely to occur after the deal is struck?

That’s where the new consumer bureau comes in.

We believe in comparison shopping. We want the price and the risks to be clearer, so that consumers can see what is being offered and decide the products that are best for them. We want to see innovations, lots of innovations. But innovations need to be around real product differences that consumers can see and understand – not around misleading advertising and new tricks buried in the fine print. Our goal is simple: We want the credit market to work better for consumers, for responsible providers, and for the whole economy.

Congress has already begun to change credit markets. The new CARD Act changed certain elements of credit card pricing, and the mortgage reform provisions of Dodd-Frank will alter some of the ways mortgages are sold. It is too soon to tell how much these new rules will push the markets in the right direction, but the consumer bureau is already beginning the work of trying to assess how the market has reacted to changes in the credit card landscape and to watch out for consumers.

One week from today, the consumer bureau will host a conference on the Credit CARD Act at the Treasury building in Washington. Congress indentified a number of unfair practices in the credit card industry and outlawed them in the CARD Act, and it will be the one-year anniversary of the implementation of most of the provisions that law. Our plan is to find out how much has changed in that year. To do that, we are going to take a hard look at the data – interest rates, re-pricing and the like. We will bring together academics, industry leaders, consumer advocates, and voices from within government to look at the data from multiple directions, and to analyze how the industry has reacted and how consumers are responding. The idea is to establish a fact base upon which the CFPB can improve our understanding of the impact of the CARD Act and to help us understand how we can make credit markets work better.

Read the full text of her remarks.