On August 27, 2019, the Consumer Financial Protection Bureau (CFPB or Bureau) released its fourth biennial report on the consumer credit card market (2019 Report or Report). The Report summarizes the CFPB’s views on the impact of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act or Act) on the consumer credit card market. The Report was issued pursuant to Section 502(a) of the Act, which mandates that the CFPB conduct a biennial review of this market.
The 2019 Report updates the results from the CFPB’s 2017 Report and details the CFPB’s most recent review of the consumer credit card market, which covers 2017–2018. The review included responses to the Bureau’s January 2019 request for information (2019 RFI), as well as other data from regulators, industry, and consumers.
In a press release, the CFPB noted that the passage of time since the 2009 enactment of the CARD Act has resulted in challenges in stating how the consumer credit card market continues to be affected by the Act. According to the Report, going forward, while the CFPB will continue to report on the Act’s impact where feasible, future reports will have a greater focus on overall credit card market conditions.
This alert highlights several of the Bureau’s key findings in the 2019 Report, including those related to the cost and availability of credit, issuer practices, debt collection, and product innovation.
- Use of Credit. The Bureau estimates that 66% of U.S. adults had a credit card account at the end of 2018. Regarding consumers who held at least one general-purpose credit card with a balance, the Report found that the average balance per cardholder was about $5,700 at the end of 2018. This is the highest average balance since mid-2009; however, the Bureau explained that, as a share of disposable income, credit card debt has been relatively flat. Also, according to the Bureau, there have been no significant changes in the average share of accounts revolving a balance over the past few years. General-purpose credit card payment rates have continued to grow since the recession, exceeding 30% at the end of 2018. The Bureau concludes that the rise in payment rates, without a correspondent decline in revolving rates, indicates that consumers using general-purpose credit cards as transaction devices are increasing purchase volume. This trend may be attributable in part to the value that consumers derive from richer rewards products. The Bureau also reports that both delinquency rates and the rate of charged-off balances have been increasing since 2017.
- Cost of Credit. The Bureau finds that the cost of card credit on revolving accounts has increased since 2017, primarily driven by increases in interest rates tied to changes in the prevailing market interest rates. According to the 2019 Report, fees remain flat or have declined and represent slightly less than one-fifth of the total cost of credit. While fee composition has changed little over the past few years, the Bureau observes an increase in annual fee volume and a decrease in debt suspension fee volume. This increase in annual fee volume likely is driven by the richer rewards card products that have entered the market over the last few years.
- Availability of Credit. The Bureau notes that in 2018, consumers opened about 106 million new credit card accounts, which is significantly fewer than pre-recession highs and somewhat fewer than the 2016 post-recession high. In addition, the 2019 Report notes that approximately three-quarters of all credit applications were made via digital channels (i.e., smartphone, desktop, tablet). Approval rates on applications for general-purpose credit cards have declined since 2015. For existing accounts, total credit line across all consumer credit cards reached $4.3 trillion in 2018, almost equal to its pre-recession high, although much of this growth is attributable to unused credit lines on superprime accounts.
- Credit Card Issuer Practices. With respect to rewards, the 2019 Report says that the share of credit card spending via rewards cards has continued to increase over the past few years. However, the share of new accounts with rewards has been falling. The CFPB also acknowledged that issuers are offering digital tools to make rewards easier to use and to increase the transparency of earning and redeeming rewards. It is notable that deferred interest products, which were a focus of prior years’ CARD Act reports, were not addressed in detail in the 2019 Report.
- Debt Collection. The Bureau found that most issuers supplemented in-house debt collection agents with resources from first-party debt collectors. On average, issuers kept 89% of pre-charge-off debt balances either in house or with first-party collectors and placed the remaining 11% with third-party collectors in 2017 and 2018. The Bureau estimates that credit card issuers placed 28% of overall charged-off inventory with third-party debt collectors in 2018. The 2019 Report indicates that, for credit card issuers that actively sell debt post-charge off, issuers plan to sell less debt in 2019 as part of a strategy to diversify post-charge-off recovery and strengthen financial resiliency. With respect to forbearance programs, the 2019 Report explains that most issuers have stopped offering short-term programs over the last several years and instead offer long-term programs.
- Product Innovation. The Bureau reports that most basic account servicing functions are now standard in card issuers’ mobile and online platforms, and that consumers are increasingly engaged through those channels. For example, the Bureau states that the share of customers electing to receive statements digitally rather than by mail is continuing to increase significantly. These trends are notable as issuers wrestle with regulatory requirements – including, for example, the E-SIGN Act “reasonable demonstration” requirement – that challenge issuers when meeting their customers in the digital channels that an increasing number of customers prefer. The Report also highlighted enhancements in digital channels, which include letting customers freeze and un-freeze cards within a mobile app, utilizing AI in chatbots for account management functions, allowing customers to load credit cards into digital wallets from the issuer’s app, and providing customers with interactive digital interfaces. In addition, the offering of closed-end unsecured personal loans by fintech lenders and the rise of point-of-sale loans, some of which are interest free, may have led credit card issuers to offer flexible payment options. Innovations in fraud prevention include machine learning and dynamic CVV codes that refresh periodically.