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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.

  • Get A Job

    I am confused.

    In reviewing the four observations you list, I fail to see where the CFPB had any impact, whatsoever, in these events. It is misleading for you and your agency to create the appearance that the CFPB was somehow responsible for these events.

    Let’s examine them more carefully.

    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.

    The CFPB has no powers as of yet. The CFPB had not yet been formed when the CARD Act was passed. While the CARD Act has not caused an increase in the overall cost of credit, it also has not resulted in any decrease in the overall cost of credit. Unfortunately, however, if you are a cardholder that pays on time and doesn’t go over limit, the cost of a credit card has actually increased.

    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.

    This statistic is very misleading. This is an attempt to fool the public into believing the CARD Act had no negative impact on card industry income. The improving economy was the causation. What the statistic doesn’t state is how much did the CARD Act negatively impact industry income? In other words, how would the improving economy impacted industry profits if the CARD Act were not in force?

    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.

    Again, what did the CARD Act hve to do with this fact? By your own admission, nothing.

    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.

    Again, what does this have to do with the CARD Act?

  • Get A Job

    I am confused.

    In reviewing the four observations you list, I fail to see where the CFPB had any impact, whatsoever, in these events. It is misleading for you and your agency to create the appearance that the CFPB was somehow responsible for these events.

    Let’s examine them more carefully.

    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.

    The CFPB has no powers as of yet. The CFPB had not yet been formed when the CARD Act was passed. While the CARD Act has not caused an increase in the overall cost of credit, it also has not resulted in any decrease in the overall cost of credit. Unfortunately, however, if you are a cardholder that pays on time and doesn’t go over limit, the cost of a credit card has actually increased.

    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.

    This statistic is very misleading. This is an attempt to fool the public into believing the CARD Act had no negative impact on card industry income. The improving economy was the causation. What the statistic doesn’t state is how much did the CARD Act negatively impact industry income? In other words, how would the improving economy impacted industry profits if the CARD Act were not in force?

    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.

    Again, what did the CARD Act hve to do with this fact? By your own admission, nothing.

    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.

    Again, what does this have to do with the CARD Act?

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