The Consumer Financial Protection Bureau’s credit card industry actions since opening its doors July 21 so far appear to be relatively benign to many observers, who expect the agency to focus at first on ensuring that credit card agreements are clear and easy for consumers to understand.
But the prominent placement and wording of the bureau’s new online form inviting consumers to submit credit card complaints has a few legal experts worried.
With its authority to proscribe “unfair, deceptive or abusive” practices, the form asks consumers for a description of “the issue” behind their complaint and salient credit card account details. Issuers are required to respond to credit card disputes within 10 days.
What concerns certain industry experts is that the bureau’s complaint form also asks “a lot of leading questions,” Alan Kaplinsky, a partner with the Philadelphia-based law firm of Ballard Spahr LLP, tells PaymentsSource. The agency seems to have designed the questions to gather broader information than is needed to enforce existing laws, he contends.
Examples of questions include: “If you lost money, how much money did you lose?” and “Do you believe the issue involves discrimination?”
Complaint categories include routine topics such as billing disputes, but the form also includes a few questions straying into proprietary card-issuer risk-management strategies, such as consumer credit limits and account access, with the options “credit line increase/decrease” and “closing/cancelling account.”
A bureau spokesperson declined to tell PaymentsSource how many credit card complaints it has logged so far.
“I think (the bureau) will elicit lots of complaints from cardholders which are not based on actual violations of law,” Kaplinsky says.
The bureau said in a July 18 progress report on its activities “there is still room for improvement in the transparency of (the credit card) market,” vowing that its next challenge will be “to further clarify price and risk and make it easier for consumers to make direct product comparisons.”
In a study the bureau undertook early this year to examine the effect of the Credit Card Accountability, Responsibility and Disclosure Act one year after implementation, it concluded that late fees, interest-rate hikes and over-limit fees had been “significantly curtailed,” and card pricing was “clearer and more up-front.”
So far the bureau’s mandate from Congress, as part of the Dodd-Frank Act, is to enforce existing laws by taking over supervisory roles from other agencies that previously supervised banks and issuers. The bureau oversees financial institutions with at least $10 billion in assets, which comprise some 80% to 90% of the credit card industry.
The bureau cannot create new rules until the Senate confirms and appoints an agency director. President Obama on July 18 nominated Richard Cordray, former Ohio attorney general, to direct the bureau.
Various consumer-advocacy groups support Cordray as the bureau’s director and urge action to get the agency moving on exploring the need for further credit card regulations and enforcement.
The National Consumer Law Center this month issued a statement recommending that the bureau immediately “get inside the books of credit card companies to make sure they are not charging illegal fees or rate increases and help consumers shop for the best card without back-end tricks and traps.”
But given current political hurdles, it is unlikely that a director will be named soon, observers say.
“We don’t foresee a director being named immediately, and there is the possibility there will be no director,” Michael Brauneis, managing director of regulatory risk in the Chicago office of Menlo Park, Calif.-based consulting firm Protiviti Inc., tells PaymentsSource. “The bureau will not be making new rules on its own anytime soon.”
Credit card issuers assessing the bureau’s potential effect on their operations should pay attention to all new customer agreements, statements and disclosures to ensure they are clear and easy to understand, and they should closely examine their consumer-complaint processes, Brauneis says.
“Issuers should begin analyzing what their own complaint data say and make sure they have an ability to respond in a timely process, as well as noting where a trend might suggest a bigger root cause,” he says. “Wherever possible, issuers should take steps to address any problems in the consumer-complaint area before examiners get to it.”
Beyond responding appropriately to complaints, issuers should not underestimate the challenges of making credit card disclosures simple, Brauneis says.
“If the mortgage industry is any indication, the bureau will be pushing to simplify and standardize many of the forms the credit card industry uses, which could have the ultimate effect of eliminating differentiating product features and fees,” he says. “Issuers will have to negotiate and compromise with the bureau if it reaches the point.”
Credit card issuers are likely to feel “less pressure” immediately from the bureau because of the industry regulatory overhaul via the Credit Card Accountability, Responsibility and Disclosure Act of 2009, Moody’s Investors Service said in a July 25 report.
“We expect the bureau’s incremental initiatives (on credit cards) to focus on simpler disclosures and contracts,” Moody’s said.
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