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:
- 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.
- 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.
- 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.
- 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.