On September 29, 2021, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released its fifth biennial report on the consumer credit card market (“Report”). The report summarizes the impact of the Credit Card Accountability Responsibility and Disclosure Act (“CARD Act” or “Act”) on the consumer credit card market. The Bureau issued the report in accordance with the CARD Act requirement that the CFPB conduct a biennial review of this market.
The report updates the results of the 2019 CFPB report and details the recent CFPB review of the consumer credit card market, covering the period 2019-2020. The review also took into account responses to the Bureau’s August 2020 inquiry, as well as other data from regulators, industry, and consumers.
This alert highlights several of the Bureau’s key findings, including those related to the cost and availability of credit, issuer practices, debt collection and product innovation. The report also focused on the impact of the COVID-19 pandemic on consumer use and interaction with credit cards. According to the report, issuers reacted quickly to the economic conditions caused by the pandemic, and issuer relief efforts “likely allowed consumers to preserve billions of dollars in cash after, and especially immediately after, the onset of the pandemic. “.
- Use and availability of credit. The Bureau estimates that 70% of American adults had a credit card account by the end of 2020. Fewer consumers applied for new credit cards in 2020, while existing cardholders paid off most of their money. credit card debt in recent years. Credit card debt fell to $ 825 billion at the end of 2020, from $ 926 billion in 2019. The report also found that in 2020, 88% of all general purpose credit applications were carried out via digital channels (i.e. smartphone, desktop computer, tablet). Approval rates for general-purpose credit card applications have continued to decline since 2015. The Bureau suggests that the drop may be linked to the pandemic. General purpose credit card payment rates continued to rise, with around one-third of balances now being paid off at the end of the cycle.
- Product innovation. The Bureau reports that most basic account management functions are now found on almost all mobile and online card issuers’ platforms and that consumers are increasingly engaged through these channels. For example, the share of customers choosing to receive statements digitally has continued to increase. The report also highlighted improvements to digital channels, including allowing customers to freeze and unfreeze cards in a mobile app, using AI in chatbots for account management, and allowing customers to upload cards. credit cards in digital wallets. The offer of closed unsecured personal loans by fintech lenders and the increase in point-of-sale loans, some of which are interest-free, and “buy now, pay later”, may have led credit card issuers to offer flexible payment options. . Fraud prevention innovations from issuers include offering virtual credit card features that allow users to transact from their primary credit card account through a single, separate credit card number.
- Cost of credit. The Bureau found that the cost of credit on revolving accounts increased in 2019, but fell to 2018 levels in 2020. Fees declined in 2020 largely due to “significant increases in fee waivers during the period. pandemic ”. The Bureau observed an increase in the volume of annual fees and a decrease in the volume of late fees and balance transfer fees. The volume of additional annual fees is a function of increases in both the average annual fee amounts and the total number of accounts that incurred these fees.
- Practices of credit card issuers. The share of credit card spending through rewards cards has continued to increase since 2018. The CFPB found that during the pandemic, some issuers increased rewards for spending in areas such as groceries and delivery. at home, but subsequently began to refocus rewards programs towards travel and entertainment.
- Debt recovery. The Bureau found that most issuers supplement in-house debt collectors with resources from first party debt collectors. On average, issuers retained 96% of pre-write-off debt balances either internally or with owner-collectors and placed the remaining 4% with third-party collectors. The Bureau estimates that credit card issuers placed nearly 18% of all written off inventory with third-party collectors in 2019 and 2020. When it comes to forbearance programs, the report explains that most of issuers have stopped offering short-term programs in recent years. several years and rather offer long-term programs.