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 pursuant to the CARD Act’s requirement that the CFPB conduct a biennial review of this market.
The Report updates the results from the CFPB’s 2019 Report and details the CFPB’s recent review of the consumer credit card market, covering 2019–2020. The review also considered responses to the Bureau’s August 2020 request for information, 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 how the COVID-19 pandemic impacted consumers’ use of and interaction with credit cards. According to the Report, issuers quickly responded to the economic conditions caused by the pandemic, and issuers’ relief efforts “likely resulted in consumers preserving billions of dollars in liquidity following, and especially immediately following, the onset of the pandemic.”
- Use and Availability of Credit. The Bureau estimates that 70% of U.S. adults had a credit card account at the end of 2020. Fewer consumers applied for new credit cards in 2020, while existing cardholders paid off the highest share of their credit card debt in recent years. Credit card debt fell to $825 billion by the end of 2020, down from $926 billion in 2019. The Report also found that in 2020, 88% of all general-purpose credit applications were made via digital channels (i.e., smartphone, desktop, tablet). Approval rates on applications for general-purpose credit cards have continued to decline since 2015. The Bureau suggests this decline may be related to the pandemic. General-purpose credit card payment rates have continued to grow, with about one-third of balances now paid off by cycle end.
- Product Innovation. The Bureau reports that most basic account servicing functions are now in almost all card issuers’ mobile and online platforms and that consumers are increasingly engaged through those channels. For example, the share of customers electing to receive statements digitally continued to increase. The Report also highlighted enhancements in digital channels, including letting customers freeze and un-freeze cards within a mobile app, utilizing AI in chatbots for account management, and allowing customers to load credit cards into digital wallets. 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, and “Buy Now, Pay Later,” may have led credit card issuers to offer flexible payment options. Issuer innovations in fraud prevention include offering virtual credit card features that allow users to transact on their main credit card account through a separate, unique 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 due largely to “significant increases in fee waivers during the pandemic.” The Bureau observed an increase in annual fee volume, and a decrease in late fee and balance transfer fee volume. The additional annual fee volume is a function of increases in both the amounts of average annual fees and the total number of accounts that incurred such fees.
- Credit Card Issuer Practices. The share of credit card spending via 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 grocery and home delivery, but subsequently began shifting the focus of rewards programs back toward travel and entertainment.
- 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 96% of pre-charge-off debt balances either in house or with first-party collectors and placed the remaining 4% with third-party collectors. The Bureau estimates that credit card issuers placed almost 18% of overall charged-off inventory with third-party debt collectors in 2019 and 2020. With respect to forbearance programs, the Report explains that most issuers have stopped offering short-term programs over the last several years and instead offer long-term programs.