US law saves billions on credit card fees, but risks remain: CFPB

The bureau says credit card consumers have saved $16 billion since 2011, thanks to a law banning “gotcha” credit card issuer tactics that were common during the last decade. The CFPB is ordering the company and its owner to halt their illegal practices and improve the way they investigate consumer disputes and obtain, sell, and resell consumer credit reports. The CFPB says both have largely gone away since Congress passed the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) back in 2009, during a flurry of legislation attempting reform of the USA financial system.

Levine’s entire social media post said, “CFPB takes an $8 million chunk out of Clarity Services for several issues regarding consumer reporting and it’s just a ripple”. The example the report uses is based on a consumer carrying over $15,000 in credit card debt at an average rate of 12 percent. Had these fees continued at their pre-CARD Act level, consumers would have paid $9 billion more from the beginning of 2011 through to the end of 2014.

Another big decline came from the near evaporation of “over-the-limit” fees, which averaged $35 and were charged when cardholders exceeded their credit limit. Mark Graf, the chief financial officer of Discover Financial Services, said at a 2012 conference that the “one silver lining to the cloud that was the CARD Act”, was its restrictions on hiking interest rates. By 2012, only 1.5% of accounts saw upward rate hikes.

The law requires that access to consumer reports be limited to those with a “permissible objective”. As of late this year, more than 100 million accounts now offer free access to the accountholder’s credit scores. With these products, if the balance is not paid in full by a given date, the accumulated interest is assessed retroactively. Consumers with lower credit scores are paying more for these products, but they do so at the back-end of the transaction, with annual interest rates of around 25 percent.

In a separate message after contacting Levine – who has more than two decades of industry legal experience working with dealerships and finance companies – the attorney who also spent time with AutoStar Solutions added, “I’m not surprised by the size of the penalty”. Finally, the order prohibits the company from engaging in certain practices, such as the selling or reselling of any consumer report to any person whose objective for obtaining the report is to consider purchasing any service provided by the defendants, or to generate a lead. Subprime companies also tend to have longer, more complicated agreements. But the terms of rewards programs are often not available to consumers until after they apply for the card. Even if the terms were available ahead of time, card issuers generally retain the right to change terms at any time.

Debt collection practices pose risks to consumers: When consumers fall behind on their bills, their accounts are moved into collections. There is a wide variation in how aggressively these collectors pursue the debts.

All issuers employ third-party contingency collection companies in attempting recovery on charged-off debt, and half of all issuers surveyed placed almost half or more of their charged-off balances with such collectors.

Card agreements are still onerous. “And we routinely hear that the cost of protecting consumers will be to constrict the availability of credit and even to drive some financial service providers out of business altogether”, the remarks continue.