CFPB takes on consumer lenders, card market

The Consumer Financial Protection Bureau wants to get a better fix on the market for credit cards. On March 17, 2015, the federal consumer watchdog agency issued a request for public comments on how the credit card market is functioning and the impact of credit card regulations on both consumers and card issuers. The request came on the heels of a report to Congress in which the CFPB blasted banks and other service providers for hamstringing consumers when it comes to seeking relief for disputed transactions. “Tens of millions of consumers are covered by arbitration clauses, but few know about them or understand their impact,” said CFPB Director Richard Cordray.

Mandatory arbitration clauses limit consumer remedies

Arbitration is a method for resolving disputes outside the court system. According to the CFPB’s research, in recent years many contracts for consumer financial products and services have included “pre-dispute arbitration clauses” stating that either party can require that disputes be resolved through arbitration instead of the court system. Where such a clauses exist, either party can block lawsuits, including class actions, from proceeding in court.

The 2010 Dodd-Frank Act addressed the issue by prohibiting pre-dispute arbitration clauses in mortgage loan agreements. The law also tasked the CFPB with undertaking a study of pre-dispute arbitration clauses in other consumer finance markets and to issue regulations on their use if the study finds problems.

These are some of the problems highlighted in the CFPB’s report titled Arbitration Study: Report to Congress, pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1028(a):

• 53 percent of credit card issuers include arbitration clauses, mostly large banks.
• 93 percent of prepaid card agreements studied are subject to arbitration clauses.
• 44 percent of insured checking account deposits are covered by arbitration clauses.
• Among mobile wireless carriers that authorize third parties to charge consumer accounts for services, 88 percent of carriers representing 99 percent of the market include arbitration clauses in customer contracts.

Copies of the report are available for downloading at files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf .

Getting to know the card market

The March 17 request by the CFPB is part of an ongoing series of studies mandated by Congress under the CARD Act of 2009. The Bureau said comments received will contribute to a report scheduled to be delivered to Congress later this year.

The CFPB said it wants comments from all stakeholders about how they believe the card market is functioning and what passage of the CARD Act has or has not done for consumers. Specific areas of inquiry include:

• What, if any, changes card issuers have made in terms of pricing, marketing, underwriting and other practices, and whether those changes have benefitted consumers.
• To what extent unfair and deceptive acts and practices, or unlawful discrimination, still exist in the credit card market.
• Debt collection practices and issuer relationships with third-party collection agencies.
• Whether disclosures regarding rewards programs are clear and transparent, and what can be done to improve such disclosures.

“With today’s inquiry, the Bureau is seeking to further understand how the credit card market is working in practice and how credit card protections affect consumers and credit card issuers,” Cordray stated when introducing the request for comment. “As we undertake this review, the Bureau wants to ensure it understands the information that consumers, industry, advocates, and other stakeholders believe is most relevant.”

Copies of the CFBP’s request for comment is available for downloading at files.consumerfinance.gov/f/201503_cfpb_card-act-report-rfi.pdf .

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