CFPB suggests credit card giants may not be playing fair

The Consumer Financial Protection Bureau is looking at whether the largest credit card issuers are engaged in unfair or anti-competitive practices given that eight companies control 70% of the market.

The CFPB said in a blog post Wednesday that it is looking at ways to make it simpler for consumers to compare, switch or refinance credit cards. Consumers paid roughly $120 billion a year in interest and fees on credit cards from 2018 to 2020, or roughly $1,000 a year per household, the CFPB said.

After the blog post was published, CFPB Director Rohit Chopra tweeted: "The market is dominated by a handful of banks and credit card giants."

The bureau did not identify the eight largest issuers by name. The list includes American Express, Bank of America, Capital One Financial, Citigroup, Discover Financial Services, JPMorgan Chase and Wells Fargo, according to the Nilson Report.

Richard Hunt, president and CEO of the Consumer Bankers Association, tweeted in response to Chopra that "these credit cards are issued after an underwriting process has taken place to ensure consumers are qualified. It is also important consumers have access to credit from a heavily regulated industry and not by fly-by-night entities or expensive payday lenders. Agree?"

The scrutiny of large credit card issuers coincides with a Biden administration effort to promote more competition in the general economy to offset the harmful effects of corporate concentration.

“Given the outsize role that credit card debt plays for many households, the CFPB is looking to ensure that there is robust and fair competition in the credit card market,” the bureau said in the blog post. The authors were Ashwin Vasan, a senior advisor to Chopra and former vice president at Capital One Financial, and Wei Zhang, a CFPB program manager and former financial analyst at the Office of the Comptroller of the Currency.

To be sure, last year the CFPB issued a report on the credit card market that highlighted the industry’s efforts to aid consumers during the pandemic. At the time, acting Director Dave Uejio wrote: “During the COVID-19 pandemic, credit cards played a vital role as both a source of credit in emergencies and a payment method as more transactions occurred online."

The CFPB noted in the report last year that 175 million consumers have at least one credit card, and that credit cards are "central to the financial lives" of American consumers. Bankers note that consumers have a wide range of credit card options.

"Each and every one of those consumers chose to open a credit card account because of the safety, convenience and significant benefits that come with today's credit cards," a spokesman for the American Bankers Association said.

The CFPB now appears to be focused on spurring competition to help consumers refinance credit card debt bearing high annual interest rates. The agency said that even small changes made by the largest card issuers could have a significant impact.

“Many credit card customers are often locked into high rates with few options to easily escape,” Vasan and Zhang wrote in the blog post Wednesday. “If there were more intense competition to refinance balances, consumers could save billions.”

The CFPB also said that credit cards have interest rates that are relatively expensive for consumers compared with other forms of credit. The average interest rate on credit cards increased to 16.9% in 2019 from 13.7% in 2015, according to data the CFPB cited from the Federal Reserve.

Because the credit card industry is controlled by a small number of major firms, the blog post said, it “can be common to see parallel, anti-competitive shifts in business practices.”

The bureau said it is paying close attention to the practices of the largest issuers after finding that information about borrower repayment patterns has not been reported to the credit bureaus by some issuers since 2014. Failing to report consumer payments to credit agencies helped card issuers “obscure the repayment behavior of their customers, making it more difficult for other issuers to offer competitive pricing,” Vasan and Zhang wrote.

“We will be paying close attention to such industrywide practices that challenge fair competition,” the authors stated.

To make it easier for consumers to switch credit card providers, the CFPB said it is planning — under authority granted it in Section 1033 of the Dodd-Frank Act — to require companies to let consumers download their bank data. Last year, the White House issued a broad executive order encouraging the CFPB to make customer data portable.

“We are considering options that will help Americans with credit cards escape high rates and lousy service,” the authors wrote. “Consumers who have more control over their own data may be able to create more options for themselves to find better deals.”

The bureau also is increasing scrutiny of credit card fees including cash advance, balance transfer, foreign currency and late fees.

“Many of these fees ‘herd’ around common amounts, suggesting that competition is ineffective in driving down price,” wrote Vasan and Zhang. “We will be considering ways that will help consumers cut down on these fees that drive up the total cost of credit.”

Yet the CFPB's report last year found that late fees and other “penalty” fees were targeted by specific provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009. Average late fees have increased to $31 in 2020 from $28 in 2018 but remain below the $33 average in 2008 before the act took effect.