The Consumer Bankers Association has launched a four-part blog series “Facts Matter” to counter what it calls “misinformation conveyed by the CFPB” in its press release about the CFPB’s October 2023 report (Report) under the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The CARD Act requires the CFPB to issue a biennial report to Congress on the consumer credit card market.
According to CBA, the CFPB’s press release was “full of headlines distressingly removed from and even contradicted by the Report itself.” CBA indicates that “[s]ince the beginning of the Biden Administration, the CFPB has pushed forward major, industry-reshaping policy changes around a policy thesis that there’s a lack of competition for consumer financial products and services.” This position, in the CBA’s view, is inconsistent with the Report which “clearly shows a competitive credit card market.” In the four-part blog series, CBA intends to “contrast the CFPB’s CARD Act Report press release against reality, primarily using the data from the CFPB’s own research.”
In its press release, the CFPB stated that “[m]ajor credit card companies’ profits are now higher than pre-pandemic levels, potentially signaling a lack of competition in a market consistently dominated by the top 10 credit card companies.” In the first of its blog series, CBA asserts that this CFPB claim misrepresents the Bureaus’ own data in the following ways:
- The Report shows that the top ten credit card issuers compete with smaller banks for market share. It states that the market share of the top 10 credit card issuers declined by four percent from 2016 to 2022 and that market share for the next 20 issuers grew by the same percentage in that time frame.
- The Report shows that issuers compete vigorously and innovate creatively to win new customers. It highlights that, “[i]n 2022, credit card marketing efforts were at their highest since at least 2015.” (CBA notes that while the Report’s analysis does not look back further than 2015, data from the CFPB’s 2013 CARD Act Report shows that credit card marketing efforts are actually at their highest levels since the CARD Act was enacted in 2009.)
- The Report explains how credit card companies develop new technologies to better reach new consumers. For instance, the Report explains that “[t]hird-party comparison (TPC) sites such as Credit Karma, NerdWallet, and others drive a lower share of credit applications than before the pandemic but remain a significant channel for digital traffic.” This means that even at these recently-reduced levels, a fifth of credit card applications come in via these digital third-party sites, meaning that consumers are shown a range of different credit cards for which they are likely qualified before they choose. This is particularly helpful for subprime and credit invisible consumers, as evidenced by their higher usage of these third-party comparison sites for their applications. The Report describes recent advances by card issuers related to soft credit inquiries that increase competition by allowing consumers to compare multiple credit card offers, without impacting their credit score. The Report notes that card issuers are introducing a wide range of new technologies and product offerings so they can offer more sophisticated underwriting and new form factors like digital wallets and different payment structures that compete with non-banks and other forms of credit and payment tools, like buy-now-pay-later products and “credit builder” loans.
- The Report shows that even after obtaining a customer, issuers must compete vigorously to keep the customer’s business. In a “curious omission,” the Report does not indicate how many credit cards the average cardholder has. In its 2021 CARD Act Report, the CFPB noted that the average cardholder carried 3.8 credit cards in 2020. It can be assumed that this number has grown because the data on the quarterly number of open credit accounts in the October Report shows a steady climb in open credit accounts that looks to at least match, if not outpace, population growth in that same time period. Thus, even after winning a consumer’s business as a cardholder, an issuer still must compete against two or three credit cards each and every time the consumer uses a credit card to make a purchase. The Report acknowledges this by stating states that “[s]ince consumers often carry more than one credit card, credit card issuers compete to acquire and retain “top of wallet” status as consumers’ primary method of payment. Issuers must refresh product offerings and provide new benefits regularly to ensure cardholders reach for their product first at checkout or keep their card as the default option in a mobile wallet.” In particular, the data in the Report showing that there were $53 billion in balance transfers in 2022 indicates there is fierce competition amongst issuers.
CBA notes that the Biden Administration has used the policy thesis of a lack of competition for consumer financial products and services to justify its proposal to reduce the credit card late fee safe harbors and its proposed “open banking” regulation to implement Dodd-Frank Section 1033. CBA asserts that, as indicated above, “the CFPB’s own research shows that the CFPB is simply wrong in how it justifies its rulemakings.”