The credit card issuer Synchrony Financial doesn't appear to be too worried about new Consumer Financial Protection Bureau scrutiny of medical-related cards.
The consumer lender is "very proud of the CareCredit products that we offer," Synchrony CEO Brian Doubles said Tuesday on a quarterly earnings call. The company's CareCredit unit provides financing for elective procedures, wellness expenses, dental care and pet care.
The CFPB has been scrutinizing medical financing as part of a
The hearing focused largely on credit cards that offer deferred interest — where consumers can get a 0% rate for several months but face retroactive interest charges if there's a balance at the end of the period. Synchrony's CareCredit card offers that type of promotional financing.
Asked about the topic on Tuesday, Doubles said that CareCredit is "not a medical credit card" and noted that 70% of the business comes from dental and pet care.
He also said the company has "worked very hard to ensure that the products are fair and transparent," with deferred interest practices that are "industry-leading." Years ago, the CFPB investigated Synchrony over deferred interest products, but in 2021 the agency opted against an enforcement action.
Doubles said the CFPB's recent focus on deferred-interest financing could lead to improvements at other lenders that compete against Synchrony.
"One positive outcome would be just to level the playing field and bring other issuers kind of up to the standards and the things that we do every day," Doubles said. "So again, very proud of the product. It's actually one of the products that we get the absolute best feedback on from customers."
The CFPB's scrutiny of medical credit cards is the latest potential example of stricter regulation for the $109 billion-asset Synchrony. The company is set to face tougher capital rules from the Federal Reserve, which is
Synchrony has been preparing for the new rules and running different scenarios to gauge their potential impact, Chief Financial Officer Brian Wenzel told analysts. So far, the changes appear "manageable," he added.
The Stamford, Connecticut-based lender is also "as prepared as we could be" for the CFPB to
An $8 fee is "not a deterrent" against late payments, Doubles said Tuesday. He added that the moves card issuers will take to protect against higher late-payment risks will have a "lot of unintended consequences."
Though lawsuits from the industry are possible — and they could delay the late-fee rule — Synchrony is preparing for the $8 fee to take effect once the CFPB finalizes it.
Synchrony's preparations include talking to its partners on retail credit cards and other types of financing. Those merchants include Lowe's, Walgreens, Verizon and PayPal.
The conversations have been productive, Doubles said. The retailers understand that Synchrony will make up for lost revenue in other ways and that "this is an issue that the entire industry has to deal with," he added.
Analysts say Synchrony has more exposure to the late-fee proposal than certain other consumer lenders, though Synchrony executives have said they have ways to offset the pressure. Those contingencies include charging higher annual percentage rates, along with imposing other types of fees and using penalty pricing.
Still, Jefferies analyst John Hecht wrote Tuesday that the CFPB's regulatory actions could constrain the company's growth and increase its headline risk under a downside scenario for the company's stock price.
In connection with the $8 late fee proposal, Doubles said Synchrony and its partners have had "good dialogue around underwriting" and the likelihood that the bank will have to cut off some riskier borrowers from financing.
"I think they fully appreciate that, without some of these pricing offsets ... a fairly significant portion of the customers that we underwrite today might lose access to credit," Doubles said. "And just to be clear, that's something that we don't want. It's something that they don't want. So our interests are very much aligned on that point."
The company's stock was up 1.58% to $36.07 following Synchrony's earnings release. Its net earnings slid to $569 million during the second quarter, down from $804 million a year earlier, largely due to bigger reserves to protect against loan losses.
But Synchrony upgraded its guidance on loan growth for 2023 and said that loan losses should be slightly better than it once expected.
