It has been five years since the Credit CARD Act was signed in May of 2009, and about four years since a federal consumer protection agency was enacted — but guarding consumers against financial abuses is still a hot issue.
This week, the benefits of the Credit Card Accountability, Responsibility and Disclosure Act have been under a microscope, and so has the Consumer Financial Protection Bureau.
First, the CARD Act. In an update to a September 2013 report, four researchers estimate the law is saving consumers $12.6 billion a year in fees and interest. That’s not bad, but an earlier draft of the paper — based on a different calculation — put the savings at $20.8 billion a year, or $8.2 billion greater. To measure the savings, the researchers compared the costs on consumer cards with business cards, which are not subject to CARD Act rules.
The researchers’ conclusion didn’t change: The law, which restricted fees and rate hikes, is saving consumers money without leading to higher costs in unregulated areas, and it’s not cutting borrowers off from credit.
Michael Calhoun, president of the Center for Responsible Lending, said the lower estimate of savings doesn’t dull the law’s achievement.
“The savings are critical, but equally important is the transparency,” Calhoun said. The law put a stop to most surprise fees and rate hikes. Those gotcha tactics had allowed credit cards to advertise rates far lower than they really charged card users. Over-limit fees, for example, were a big revenue generator that have virtually disappeared under the CARD Act.
Even some people in the card business have told Calhoun that the market is healthier, now that it doesn’t rely on snaring unwary card users. Card companies disliked the practices — but in the absence of regulation, no company wanted to be the first to advertise realistic prices instead of charging back-door fees, because “it looks like they’re charging more,” he said. Card companies still have wide latitude to charge high rates, he said, noting that mainstream card companies typically charge higher-risk cardholders 25 percent interest. “You’re reaching deep in the market if you’re charging 25 percent,” Calhoun said. “You can absorb a lot of losses with that.”
The consumer protection bureau did its own study of the CARD Act’s effects in October 2013 that reached less aggressive conclusions. It found that the total cost of using cards fell 1.9 percentage points on the basis of card balances from 2008 to 2010. How much of that was due to the CARD Act, however, is difficult to determine, the agency said.
On Thursday the consumer protection agency, which is embattled on Capitol Hill, provided a new look at how its behind-the-scenes supervisory activity is paying off for consumers. The CFPB announced that it has prompted $70 million to be paid out to 775,000 consumers in recent months through its supervision of payday lenders, debt collectors, mortgage companies and other financial services, amounting to about $90 per recipient.
The remediation comes through nonpublic enforcement actions. That’s separate from the parade of big-dollar, court approved settlements with major credit card issuers that have sent nearly $1.5 billion in refunds — so far — to users of “payment protection” plans and other add-on services.
“For the first time at the federal level, nonbank financial institutions are subject to supervisory oversight that holds them accountable for how they treat consumers,” CFPB Director Richard Cordray said in an announcement of the report. Called “Supervisory Highlights – Spring 2014,” the report covers the period from November 2013 through February 2014.
Accountability is also the watchword raised by critics of the consumer bureau, who have introduced numerous bills in Congress to curtail its powers. The ideas range from requiring an extra layer of internal oversight to allowing consumers to opt out of anonymous research data.
Wednesday, a House subcommittee hearing on 11 CFPB bills drew sharp opposition from consumer groups, who say the Republican-authored, business-backed measures are an attempt to gut the agency, under the guise of accountability.
“These bills do nothing to enhance consumer protection, improve the efficiency of the agency or promote a fair marketplace,” Calhoun said in a statement. “In fact, they take us in the opposite direction.”
Without referring to the political battle going on around it, the CFPB’s report on its supervisory activity demonstrates the need for a cop on the consumer financial beat. Supervisors found that some payday lenders are showing up at borrowers’ workplaces to collect. Some debt collectors are calling people 20 times a day, and some credit bureaus tell consumers to submit complaints online or by phone, then refuse to accept the complaints through those channels.
It’s hard to argue against accountability for a government agency, and the CFPB has in fact taken new transparency steps, such as opening its advisory board meetings to the public. But when it comes to being accountable for their actions, financial businesses have further to go than the watchdog agency that is keeping an eye out for consumers’ welfare.