May 18, Ms. Monica Jackson Office of the Executive Secretary Bureau of Consumer Financial Protection 1700 G Street, NW Washington, DC 20552

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1 Nessa Feddis Senior Vice President & Deputy Chief Counsel for Consumer Protection and Payments Center for Regulatory Compliance May 18, 2015 Ms. Monica Jackson Office of the Executive Secretary Bureau of Consumer Financial Protection 1700 G Street, NW Washington, DC Dear Ms. Jackson: Re: Request for Information Consumer Credit Card Market Bureau of Consumer Financial Protection 80 Federal Register (March 19, 2015) The American Bankers Association (ABA) 1 is pleased to submit our comments to the request for information of the Bureau of Consumer Financial Protection Bureau (Bureau) regarding the consumer credit card market pursuant to the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). Section 502(a) of that act requires the Bureau to conduct a review every two years of the consumer credit card market, including a review of the terms of credit card agreements and practices and the impact of the CARD Act on the cost and availability of credit, particularly with respect to nonprime borrowers. 2 The Bureau requests information about twelve specific topics as well as any information that may be relevant to a review of the credit card market, including the impact of the CARD Act on that market. While the CARD Act was intended to provide consumers with significant benefits, we remain particularly concerned that the CARD Act has resulted in less credit card credit availability for consumers, especially subprime consumers, and that this reduction in the availability of credit may have resulted in people turning to less attractive options to meet their credit needs. ABA urges the Bureau to assess the extent to which consumers are turning to other sources of short-term credit and to consider the impact of anticipated, new regulations governing small dollar loans on the availability of legal alternative sources of credit. The net effect of the entire regulatory scheme may be that many low and moderate income (LMI) consumers will have few, if any, short-term credit options available within the 1 The American Bankers Association is the voice of the nation s $15 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $11 trillion in deposits and extend more than $8 trillion in loans. 2 Consistent with the Bureau s 2013 CARD Act Report, the impact of the CARD Act should be measured not from the effective date of the CARD Act, but from the time it was clear that there would be new laws that would fundamentally impact credit card practices, that is, when or shortly after the Board of Governors of the Federal Reserve (Board) proposed Regulation AA s substantive amendments that were later incorporated as key features into the CARD Act (restrictions on interest rate increases for existing balances). Card issuers would not have waited until passage of the actual CARD Act or its effective dates to begin considering and making changes to their business model.

2 regulated financial system, increasing incentives for recourse to less useful and perhaps even illegal financial sources by LMI borrowers. In addition, it is important that the Bureau keep this in mind when it considers imposing regulations on reward programs and deferred interest programs so as not to encourage further shift to less optimal products for consumers. We believe these unintended consequences must be identified and evaluated before the Bureau proposes additional requirements. ABA s comment will focus primarily on the reduced availability of credit cards, the higher cost of credit, rewards programs, and deferred interest products. IMPACT OF THE CARD ACT ON CREDIT CARD MARKETS The CARD Act has provided consumers with benefits in terms of an increased ability to predict the future cost of credit transactions, but this has predictably come with significant negative consequences, in terms of both the availability and the cost of credit to consumers. The CARD Act has yielded significant negative consequences for consumers. First and foremost, credit card credit is less available, particularly for subprime borrowers who have limited credit histories or are new to the workforce, including young people and immigrants. Second, for those who are able to attain credit, average credit lines are lower than pre- CARD Act levels. Third, borrowers who are able to obtain credit cards face higher costs of credit than they otherwise would in the absence of the CARD Act. On the surface, there have been positive developments from the CARD Act for some customers. For example, (with few exceptions) interest rate increases on existing balances have been eliminated. Less than one percent of existing balances are now re-priced, compared to nearly 6% of accounts in the fourth quarter of Consumers are paying substantially less in late payment and over-the-limit fees. The average monthly late payment fee has declined from $2.75 at the end of 2008 to $1.48 in the fourth quarter of This drop in monthly fees reflects both a decrease in the number of delinquent accounts and a decline in the average late fee per incidence. Similarly, over-the-limit fees have fallen from $1.10 in Q to just $0.01 in Q Availability of Credit A key component of the CARD Act protects customers from unexpected interest rate increases on existing credit card balances; however, there have been significant trade-offs. First, because card issuers (1) receive imperfect information about potential borrowers at the time of application, and (2) are now limited in their ability to raise interest rates on existing balances to cover increases in risk, they are more 2

3 likely to deny credit to applicants seen as potentially high-risk. For the same reasons, they are also more likely to impose higher interest rates at the outset of the lending relationship to cover risks adequately. Second, card issuers limited ability to raise interest rates on existing balances has caused credit card issuers to reduce the availability of credit for borrowers that present risks that are more difficult to evaluate, typically borrowers with lower risk scores. The effect of the CARD Act is clear from the data. As shown in Table 1, the distribution of accounts by risk type has shifted towards super-prime borrowers, as these low-risk borrowers share of accounts increased over the last six years, while the shares of subprime accounts and prime accounts have decreased. The number of super-prime accounts has surpassed its 2008 high of 151 million, yet subprime and prime account volume remain down 35% and 16%, respectively. Further, the number of new subprime accounts (opened for less than 24 months) in 2014 was roughly half of 2008 levels; yet new super-prime account volume has largely rebounded from recession levels. These data clearly indicate that credit has become more constrained for higher risk borrowers since passage of the CARD Act. Managing credit cards is an important way for people to build their credit history and become eligible for other types of loans (e.g., auto loans and mortgages), so when subprime borrowers cannot obtain credit cards, their future financial choices are more limited. 3 Indeed, as Director Cordray recently stated, [a lack of] credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible. 4 Table 1: Account Volume and Distribution by Risk, Risk Category Super-prime (Credit score > 759) Prime (Credit score = ) Distribution of Accounts Total Accounts (millions) New Accounts (millions) 2008.Q Q Q Q4 % Change 2009.Q Q4 % Change 46.9% 52.3% % 28.6% % 27-4% Subprime 23.0% 19.1% % % (Credit score < 680) Source: Argus Information and Advisory Services, Keybridge LLC Data in this chart include general purpose cards issued by companies that provide data to Argus, covering over 90% of the general purpose credit card market. 6% % 3 While we have not reviewed data based on age, young people may also have been denied access to credit card credit as a result of the CARD Act, given their lack of credit history and the specific provisions of the Act related to people under 21 years of age. The lack of access may have impacted young people s ability to build a credit history and caused them to turn to alternative, less attractive credit products. 4 CFPB Report Finds 26 Million Consumers Are Credit Invisible, CFPB Newsroom, May 5,

4 Credit lines Data showing declines in individual credit card lines also demonstrate a contraction in credit card credit. As shown in Table 2, since 2008, average credit lines have declined for all three risk categories, but this trend is most pronounced for subprime and prime accounts. The average credit line for subprime accounts has declined in seventeen of the last nineteen quarters and is 24% below its 2009 high, while the average credit line for prime accounts is down 29% from the first quarter of Table 2: Average Credit Line for New and All Accounts, Risk Category Super-prime (Credit score > 759) Prime (Credit score = ) Subprime (Credit score < 680) Total Accounts ($) New Accounts ($) 2009.Q Q4 % Change 2009.Q Q4 % Change $12,799 $11,097-13% $10,012 $8,867-11% $10,025 $7,156-29% $6,605 $4,922-25% $4,747 $3,613-24% $3,278 $2,352-28% Source: Argus Information and Services, LLC, Keybridge LLC Cost of credit As ABA noted in our comment for the last CARD Act review, the CARD Act appears to be making credit more expensive. For example, continuing prior trends, the average purchase annual percentage rate (APR) has risen from 14.23% in the fourth quarter of 2008 to 15.87% at the end of In addition, annual fees have also increased, as 12% of accounts now pay an annual fee (up from 10% in 2008), and the average annual fee is $62.31 as of the fourth quarter of 2014 (up from $53.43 in 2008). Further, while the effective finance charge yield for all accounts has fallen steadily since early 2010, 5 this is largely a function of the sharp reduction in credit availability to prime and subprime borrowers. Indeed, when looking only at new accounts, the effective finance charge yield has increased by 23 basis points since the beginning of 2013, suggesting that the cost of credit for these new accounts is increasing relative to the overall portfolio of accounts. 5 The effective finance charge yield is the annualized interest income generated by a portfolio expressed as a percentage of a portfolio s assets. 4

5 Table 3: Annual Fees, Q Q4 Change Average Annual Fee ($, All Accounts) Accounts with Annual Fee (Percent of Total) $53.43 $62.31 $8.88 (17% increase) 10% 12% 2.0% Source: Argus Information and Advisory Services, LLC; Keybridge LLC Further, as noted in our prior comment letter, the discrepancy between credit card cost trends and trends in other consumer credit types suggests that factors unique to the credit card market most likely the CARD Act are keeping credit costs elevated. This conclusion is reinforced when the consumer credit card market is compared to the small business credit card market, which is not covered by the CARD Act (See Table 4). The sharp movement away from subprime accounts in the consumer card market is not reflected in data from the small business card market, as the share of subprime business card accounts in 2014 (13.4%) is largely unchanged since 2008 (13.6%). Moreover, small business accounts have experienced a smaller increase in average APR since the end of 2008 (up 6.5%) than that seen in consumer accounts (up 11.5%), suggesting that card issuers may be increasing initial rates in response to the CARD Act. This is an unintended but entirely predictable market response to the CARD Act. Table 4: Average Purchase APR for Consumer and Business Accounts, Credit Card Type Average Purchase APR 2008.Q Q4 % Change Consumers (All Accounts) 14.2% 15.9% 11.5% Small Businesses (All Accounts) 13.9% 14.8% 6.5% Source: Argus Information and Advisory Services, LLC; Keybridge LLC ABILITY TO PAY The ability to repay provision of the CARD Act is causing some qualified borrowers to be denied credit, particularly lower-income individuals. Section (a) of Regulation Z, which implements Section 109 of the CARD Act, provides that card issuers must not open a credit card account or increase any credit limit unless the card issuer considers the consumer s ability to make the required minimum periodic payments under the terms of the account based on the consumer s income or assets and the consumer s current obligations. It 5

6 further provides, It would be unreasonable for a card issuer not to review any information about a consumer s income or assets and current obligations or to issue a credit card to a consumer who does not have any income or assets. While well-intentioned, this ability to pay requirement is causing some otherwise qualified consumers to be denied credit card accounts or to receive lower credit limits particularly lower-income individuals. While the requirement to consider the applicant s income and assets is not prescriptive, data suggest that card issuers seeking to avoid supervisory criticism apply the Regulation Z ability to pay rule strictly. As shown in Table 2, compared to the first quarter of 2009, average credit lines were down 28% for new subprime accounts, 25% for new prime accounts, and 11% for new super-prime accounts in Q Additionally, as previously discussed, new account volumes are also down (particularly for subprime and prime borrowers, who tend to have lower incomes than super-prime borrowers). Put simply, a significant number of applicants who would otherwise qualify for a credit card account under the issuer s underwriting standards are being rejected due to Regulation Z s ability to pay provisions. In addition to Regulation Z, other regulatory factors also have impacted how card issuers grant credit and increase credit lines. For example, the Office of the Comptroller of the Currency (OCC) generally limits card issuers use of income estimators. This means that when opening an account, card issuers subject to OCC examination are limited to considering only the income figure provided on the application, which might not include non-wage income. This requirement also may delay or even prevent a credit line extension for customers who have demonstrated a positive change to their risk profile, because card issuers often have difficulty obtaining updated income information from customers. The difficulty in increasing credit lines due to the ability to repay requirement makes it difficult for issuers to provide sustainable accounts to higher risk borrowers through a traditional approach to managing exposure to higher risk customers, such as by initially extending credit to these borrowers but with low credit limits and then raising those credit limits as the borrowers demonstrate their ability to manage their accounts. This means that many low and moderate income consumers, whom the CARD Act was intended to help, now have less access to credit cards to help them manage unexpected expenses or larger purchases. REWARDS PROGRAMS The Bureau has requested information on consumer understanding of rewards card programs and the potential benefits and costs of requiring additional disclosures. Rewards programs are an important tool for virtually all types of consumer-oriented businesses that depend on loyal, repeat customers. Not surprisingly, programs in the form of rewards that are unique to the card issuer as well as rewards that are offered in partnership between a card issuer and other businesses are highly popular with credit card holders, as reflected in data showing significant growth of such accounts. At the end of 2014, there were approximately 251 million rewards card accounts, and spending with rewards cards neared 90% of total credit card spending. 6

7 Consumers like and understand rewards. The growth of rewards programs demonstrates their popularity across all risk categories. (See Figure 1.) Since 2008, use of rewards cards has grown from 42% to 59% for subprime accounts; from 60% to 73% for prime accounts; and from 65% to 79% for super-prime accounts. The number of rewards card accounts has increased 8% since 2010, while non-rewards accounts have decreased nearly 46% over this period. Rewards cards now make up 73.3% of total credit card accounts. (See Figure 2.) Among new accounts, the growing popularity of rewards is even more apparent, accounting for 78.9% of new account volume in the fourth quarter of Figure 1: Rewards Card Accounts as Share of Total Accounts, by Risk Category Rewards Cards Share of Total Accounts, by Risk Category Percent 100% 80% Super-prime Prime 60% Subprime 40% 20% 0% 2008.Q Q Q Q Q Q Q4 Source: Argus Information and Advisory Services, LLC; Keybridge LLC 7

8 Figure 2: Share of Total Account Volume, Rewards vs. Non-Rewards Share of Total Account Volume, Rewards Cards vs. Non-Rewards Cards Percent Rewards - Cash/Points/Miles Rewards Air Co-brand Rewards Non-Air Co-brand Non-Rewards Data Missing 100% 3% 75% 42% 36% 35% 33% 29% 30% 27% 50% 16% 20% 5% 5% 20% 5% 20% 6% 22% 22% 25% 6% 6% 6% 25% 37% 36% 40% 41% 42% 42% 42% 0% 2008.Q Q Q Q Q Q Q4 Source: Argus Information and Advisory Services, LLC; Keybridge LLC In Q4 2014, rewards spending accounted for 90%, or $377 billion, of total credit card spending, up from 79% in (See Figure 3.) These spending trends are consistent across risk categories and types of rewards cards. For example, for the category of cash/points/miles cards (which make up more than half of rewards card accounts), average monthly spending for subprime accounts in 2014 was 84% higher than non-rewards cards, while for prime accounts it was 131% higher and for super-prime accounts it was 230% higher. Similarly, for non-airline cobrand cards (which comprise 35% of rewards card accounts), average monthly spending was 63%, 53%, and 138% higher for subprime, prime, and super-prime accounts, respectively, than for non-rewards cards. Consumers heavy reliance on rewards cards reflects their popularity and an increased level of engagement that reduces the likelihood of consumers losing out on rewards points due to inactivity. Rewards card customers also report that they understand how to use their credit card rewards program. An Ipsos Public Affairs survey released in March 2015 found that 93 percent of those with a credit card rewards program found that it was very easy or somewhat easy to understand how to use 8

9 their credit card rewards program. The 2014 J.D. Power survey found that 97 percent of consumers with a rewards credit card understand and 63 percent of them completely understand how to earn credit card rewards. 6 It also found that 80 percent of consumers completely understand the redemption process. 7 Moreover, consumer complaints related to rewards cards are very limited. As of April 7, 2015, only 2% of the credit card complaints contained in the Bureau s Consumer Complaint Database related to bank and credit union rewards, providing further evidence that consumers understand the terms of rewards programs, view rewards cards favorably, and reap substantial benefits from them. Figure 3: Total Credit Card Spending, Rewards vs. Non-Rewards, Total Credit Card Spending, by Product Type $ Billions, All Accounts Rewards - Cash/Points/Miles Rewards Air Co-brand Rewards Non-Air Co-brand Non-Rewards Missing $480 $420 B $400 $320 $329 B $293 B $321 B $345 B $369 B $389 B $240 $160 79% 81% 85% 86% 88% 89% 90% $80 $ Q Q Q Q Q Q Q4 Source: Argus Information and Advisory Services, LLC; Keybridge LLC Consumers who use rewards cards are engaged and manage them well, further demonstrating that they value and understand the programs. 6 J.D. Powers, 2014 U.S. Credit Card Satisfaction Survey, at Id. at 85. 9

10 Data show that rewards card accounts have significantly higher monthly payment rates than do nonrewards accounts. For non-rewards accounts, the average monthly payment is 11.6% of the outstanding balance, but monthly payment rates are 24.6% for cash/points/miles accounts, 32.5% for non-airline cobrand rewards accounts, and 48.4% for cobrand airline accounts. This trend holds true across all three risk categories. Rewards accounts also are maintained at a higher rate than non-rewards cards. Using January 2013 as a reference point, the retention rate for rewards accounts in December 2014 was 81.0%, while the retention rate for non-rewards accounts was 74.6%. Our members report that sustained use of a card and responsible management of spending and payments is consistent with customer understanding of the card account, including the rewards terms. Rewards offer consumers a wide array of choices. Rewards programs are varied, and consumers have choices about the type of rewards as well as the card issuer and credit card terms. Consumers can choose programs that are tied solely to credit card use or partnered rewards programs in which a third party, such as an airline, is involved. Some programs are card-specific, and others are tender neutral in that rewards can be earned using any payment channel the rewards card, a check, debit card, or cash. Rewards also may accumulate through miles traveled or other alternative mechanisms. Further, although some rewards are in the form of cash back, others are in the form of points or benefits that can only be used for certain purposes or at certain businesses. In programs where rewards are earned in the form of points or other credits, such as airline miles, the nonbank partner (e.g., an airline) establishes the specific terms of the rewards (e.g., redemption and breakage rules), while the card issuer merely acts as one of several contributing partners. In these cases, the bank cannot control critical terms and how and when they may change and evolve. The broad variation in rewards programs reflects the wide array of choices that consumers have already made. However, unlike the purely monetary features of a credit card, rewards reflect other more subjective choices such as preferences for a particular airline or retail merchant. These preferences cannot be compared meaningfully in monetary or objective terms, and any effort to create a standardized comparison system or disclosure regime would encounter difficult, and perhaps insurmountable, hurdles. Moreover, the fact that many rewards programs are operated by third parties, which would not be subject to a new disclosure requirement, would introduce an unlevel playing field that could lead to consumer confusion rather than increased understanding. Finally, while we do not believe it is feasible to create uniform disclosures given the diversity of programs, the Bureau should have clear evidence of consumer lack of understanding before imposing expensive new disclosure regulations, the costs of which would be reflected in what consumers pay. 10

11 DEFERRED INTEREST PRODUCTS The Bureau has asked for information about deferred interest products that allow the customer to pay for the purchase over time interest-free, but retroactively assess interest if the balance is not paid in full by a specific date. Such programs include those offered and paid for by retailers under agreements with credit card issuers. Much like a discount or sale, the deferred interest is a means for retailers to attract customers, compete, and increase sales. Deferred interest products also increase engagement and loyalty with a retailer s customer base by providing customers with the tools they desire to make large ticket, unexpected purchases. The deferred interest programs are popular and beneficial to consumers and retailers. Deferred interest programs provide consumers with an option to defer payment and avoid paying interest for the deferral period. Frequently, this option is provided at no cost to the consumer. These programs are particularly beneficial and attractive to consumers who unexpectedly must make a large purchase and lack the necessary funds or savings to do so. 8 Deferred interest options allow them to make the purchase when they need to and spread the payments over time without incurring interest charges, if paid as agreed. Customers benefit from periodic payments that work with their budget, and they can avoid paying interest. 9 As the Bureau found, even among subprime consumers, a majority of consumers who choose the deferred interest plan repay within the deferred interest period and benefit from the free loan. 10 One credit card issuer reports that 80 percent of its customers repay within the deferred interest period. It reports that of the 20 percent who do not, 75 percent repay in full within twelve months, demonstrating responsible financial management. Only five percent of deferred interest customers do not repay within twelve months after the end of the deferred interest period, which includes those whose accounts are eventually charged off and who never repay their debt. The minority of deferred interest customers who do not repay within the deferred interest period behave as other revolvers, and with or without the deferred interest option, would likely have revolved their balance. Moreover, research shows that those who pay interest choose deferred interest programs again, demonstrating that these customers understand and value the program. 8 One issuer reports that 58 percent of its deferred interest customers used the deferred interest feature to purchase a household product that was broken or worn down. 9 Moreover, the majority of consumers who do not repay within the deferred interest period pay no more and may pay less than what they would have paid if they had charged the purchase to a general purpose credit card without the deferred interest option. Depending on the program, customers who repay in full within 12 months of the end of the deferred interest period may pay less than they would have paid if they had charged the purchase to another card and paid interest from the date of purchase, even if the interest rate on the other card is lower. This assumes they are continuing to use the card for purchases and making payments and are not just paying down the balance. Some customers using a deferred interest payment option may not have a card with a lower rate. Those that do have the option to transfer the balance to a card with a lower interest rate at any time FR (March 19, 2015). 11

12 Consumers understand the product. Providing consumers with a free option to defer payment clearly benefits consumers. ABA cautions the Bureau against imposing additional disclosure obligations in the absence of clear evidence of consumer misunderstanding of the terms of deferred interest programs, which available data do not show. Indeed, the large percentage of those who repay without paying interest and the repeated use by those who do is strong evidence that consumers understand deferred interest products. Moreover, the disclosures consumers receive, both those required by federal regulations and those provided voluntarily by lenders, help to ensure customers understand the terms before entering the agreement. Under Regulation Z, card issuers must provide special disclosures related to deferred interest balances and reminders of the date by which borrowers must pay to avoid paying accrued interest charges. Specifically, card issuers must disclose the timeframe of the promotion period and the postpromotional APR clearly and conspicuously and may only use the phrase no interest if the phrase if paid in full precedes disclosure of the deferred interest period. In addition, during the deferred interest period, the front page of every periodic statement must disclose separately the deferred payment balance and deferred interest as well as the due date by which the deferred interest balance must be paid to avoid the deferred interest. Each periodic statement provided during the deferred interest period must contain language similar to, You must pay your promotional balance in full by [date] to avoid paying accrued interest charges. Furthermore, under the regulation, consumers may request that payments be made to the deferred interest rate balance rather than to a high-interest rate balance. Banks are routinely examined to ensure compliance with these regulations. In addition, some issuers voluntarily provide enhanced disclosures. For example, some provide information about the deferred interest on the receipt. Others, in addition to the reminder required to be in the periodic statements, phone, , and text customers in the two months prior to the end of the deferred interest period to remind them that they will owe the deferred interest if they do not pay in full by end of the deferred interest period. Because retailers also have a strong interest in their customers experience and satisfaction with their brand and store, they work closely with any credit card partner to ensure customer satisfaction with regard to the deferred interest program. Issuers will cancel the relationship with a partner if there are a noticeable number of complaints. Moreover, our members continue to analyze consumer communications to determine whether they may be improved to ensure that consumers understand the product, the consequences of not paying in full before the end of the deferred interest period, and the date by which they must pay in full to avoid paying the deferred interest. 12

13 GRACE PERIODS Card issuers have tested or are testing language to ensure that consumers understand the implications of losing a grace period if a promotional or deferred interest balance is not paid in full. The Bureau has asked about consumer understanding of grace periods. Most card issuers offer consumers a grace period on new purchases if the previous balance has been paid in full. Consumers are increasingly taking advantage of grace periods. The share of transactors, or individuals who pay off their balance in full each month, comprises nearly a third of all accounts, up from 21% in With regard to customer understanding of grace periods, the Bureau s September 3, 2014, Bulletin 11 reflects its concern that customers may not understand that a grace period for new purchases is conditioned on full repayment of a balance subject to a promotional rate (e.g., a balance transferred from another credit card or balance reflecting a special purchase) or deferred interest. The Bulletin reminded card issuers to ensure that marketing materials clearly state the impact on the grace period if a customer does not pay in full by the statement due date the deferred interest or promotional balance. More specifically, all marketing materials must clearly, prominently, and accurately describe the material costs, conditions, and limitations associated with the offers and prominently and accurately describe the effect of promotional APR offers on the grace period for new purchases. Card issuer practices vary with regard to continuing to provide a grace period even though a promotional or deferred interest balance has not been paid in full. In light of the Bulletin, card issuers have tested or are testing language to ensure they are in compliance and that consumers understand their disclosures. For example, one card issuer is moving away from the use of the term grace period, as its testing suggests it is not always understood. Instead, language such as you will start to pay interest from or when you begin to pay interest more clearly conveys the practice and its consequences. DISCLOSURES OF TERMS, FEES, AND OTHER EXPENSES, AND ONLINE DISCLOSURES Credit card agreements were simplified and made more readable during the period between 2008 and Further simplification is not immediately expected in follow-up to these efforts, particularly in view of legal requirements that affect content and length. The Bureau has asked whether the length and complexity of credit card agreements have changed over the last two years, and it has inquired about the effectiveness of disclosures of credit card fees and terms. As the Bureau found in its CARD Act Report of 2013, card issuers have streamlined their credit card agreements in recent years. Card issuers continue to evaluate the readability of their agreements and make appropriate adjustments, even following the substantial efforts made between 2008 and Legal requirements, 11 See CFPB Bulletin

14 including regulatory requirements, have however constrained opportunities for further significant simplification of credit card agreements in the current time frame. ONLINE DISCLOSURES The Bureau notes that its prior study found that most consumers who make on-line payments do not access their monthly statement and instead use online portals which do not contain these disclosures. It asks how card issuers ensure consumers who use different channels, including mobile, receive effective disclosures, both at the point of application and in managing existing accounts. Although this inquiry is couched in terms of online disclosures, the Bureau is raising a broader issue about the effectiveness of disclosures regardless of whether they are accessed in paper or electronic format and when they are read. The Bureau, for example, has not suggested that cardholders make the minimum payment online more frequently than they make the minimum payment by other means. Nor has the Bureau established a causal relationship between any such payment behavior and whether or not the minimum payment disclosures have been read and understood by the cardholder. ABA encourages the Bureau to explore the effectiveness of credit card disclosures broadly and the costs of any changes in disclosure requirements, as we believe that there are opportunities for simplifying and making credit card disclosures more effective. 12 However, before adopting any new disclosure rules, which will impose significant costs on creditors, testing and data should demonstrate that such changes will have a significantly positive consumer impact. Also, any such review should not relieve consumers from exercising their responsibility to review statements or other disclosures that are readily accessible through the click on a link on a website or the tap of a key on a keyboard. INNOVATION The Bureau has also asked whether the CARD Act has impacted innovation. It is axiomatic that it is difficult to measure what has not happened. Clearly, the CARD Act limitations on issuer practices have prevented innovation in areas that are prohibited by the Act. More broadly, however, ideas not presented or pursued cannot be evaluated or measured. Card issuers may be reluctant to advance innovative features out of fear that after significant investment in a novel feature that distinguishes them from their competitors, a regulator or plaintiff s lawyer will second guess the card issuer and challenge the feature as noncompliant with the Truth in Lending Act or as an unfair, deceptive, or abusive act or practice. The regulatory risk can be too high to take the chance. Thus, while it is difficult if not impossible to provide 12 See ABA comment letter of September 10, 2014, on the Bureau s request for information on the use of mobile financial service by consumers and its potential for improving the financial lives of economically vulnerable consumers. The letter notes, for example, that banks are improving mobile banking experience as they overcome technical challenges to be able to optimize the browsing experience (e.g. allow easy centering of personal information through a small screen) to be able to offer mobile access through a mobile s browser. 14

15 specific examples of the road not taken, we believe that the CARD Act and other regulations operate to suppress a climate of innovation that would be beneficial to consumers. CONCLUSION While the CARD Act has benefited some consumers, there have been important tradeoffs. Credit card credit has become less available to consumers, particularly subprime consumers, which may have caused them to shift to less attractive credit options. In addition, credit card credit has become more expensive. The Bureau should be mindful of such potential shifts to less optimal sources of consumer credit when considering regulation for reward and deferred interest programs. We appreciate the opportunity to comment on this important subject and are happy to discuss further. Sincerely, Nessa Eileen Feddis Cc. Dan Smith, Assistant Director, Office of Financial Institutions and Business Liaison 15