Credit cards are a safe, accessible and affordable form of consumer credit, but that could be at risk if CFPB and Congress impose imprudent regulations, according to a letter sent to CFPB yesterday by ABA and two banking and credit union associations. If federal caps on late fees, interchange fees or other bank fees go into effect, the consequences of reduced credit access will be significant, the groups said. The agency is currently conducting a biennial review of the consumer credit card market, as required by Credit Card Accountability Responsibility and Disclosure Act (CARD Act). As part of that review, the associations submitted data on key changes in the market and shared concerns about several potential regulatory actions that could restrict consumer access to credit and harm the ability of smaller financial institutions to offer cards.
“Recent proposed regulations targeting late fees would have significant adverse impacts on the costs and availability of credit cards and would create new barriers to entry for smaller financial institutions,” the associations said. While noting they will go into further detail in a future separate letter, the groups provided a summary of their concerns, including the CFPB’s proposal to cap the late fee safe harbor to no more than $8 or 25% of a cardholder’s minimum payment due, whichever is lower. They also cited legislative attempts to mandate the number of networks on which credit card transactions can be processed.
“Without access to a credit card, these consumers (often borrowers with subprime credit) turn to alternative short-term lending options like payday loans or pawn shops, which are more expensive than credit cards,” the groups said. “Further, reducing access to credit cards removes an avenue to build credit.”
As for other aspects of the credit card market, the associations noted that credit card rewards programs are popular and well-understood by customers; expressed their concern about the growth of buy now, pay later products offered by unregulated nonbank entities; warned that overregulation could undermine a functioning market; and said that the regulatory environment has not kept pace with technological developments in electronic signatures and disclosures. “We continue to urge the bureau to refresh its regulatory framework to recognize and affirm the positive role of innovative technologies in the financial lives and financial health of consumers, especially as consumers are presented with an expanding selection of nonbank options,” they said.