CBA Responds to CFPB’s Latest Misleading Press Release on the Highly Competitive Credit Card Market

Consumer Bankers Association (CBA) President and CEO Lindsey Johnson today released the following statement in response to the Consumer Financial Protection Bureau’s (CFPB) recently published Terms of Credit Card Products survey, which intentionally included a number of troubling, unfounded statements about the state of the credit card marketplace:

“The CFPB’s own data simply does not support their assertions about competition in the credit card marketplace. There are more than 640 individual credit card products and nearly 4,000 banks today in this highly competitive marketplace. This may be the only time that anyone has pointed to a market with vastly different prices as an indication of competition problems. “While this report focuses on APRs, credit card products vary significantly in a number of ways: how interest rates are calculated; whether fees are assessed; new digital and artificial-intelligence-powered product features; and importantly, the benefits and rewards they offer consumers. As a result, even within households, the average consumer has multiple credit cards. Just like any other market, people use different credit cards for different needs or preferences in their lives. Sometimes a consumer just wants a drive-thru hamburger. Sometimes a consumer wants a steak. A thriving marketplace means that consumers can choose products that may have different prices and offer features, perks, or other value that’s specific to them. “In a world where only one price is offered, consumers lose – even if it’s the “lowest price” option. History has proven that competition drives innovation and the development of new products that benefit consumers and society. Rather than bolstering this already highly competitive and well-regulated market, the CFPB seems to be driving consumers to a one-sized-fits-all world, focused on specific criteria that the CFPB chooses, as opposed to the preferences of the people we should all be working to serve.”

Background

The CFPB this morning released a credit card data spotlight with the headline: “Small issuers offer lower rates.” The CFPB goes on to make a number of troubling, unfounded statements about the credit card marketplace, such as:

• “Lack of competition likely contributes to higher rates at the largest credit card companies.”
• “CFPB research has found high levels of concentration and evidence of practices that imply anti-competitive behavior in the consumer credit card market.”
• “Notably, many of these high-cost products were co-branded cards offered through a retail partnership.”

The CFPB’s release appears to misunderstand or misconstrue basic aspects of competition policy; the credit card market; and consumer protection principles.

The credit card market is vibrant and competitive with different features for different consumer needs.

This may be the first time that a federal regulator takes the remarkable position that different pricing in the market as evidence of a lack of competition. Consumers literally have thousands of options with a wide range of features to best meet their financial situation and goals. Credit cards differ in how interest rates are calculated; what other financial products the bank may offer consumers; whether the cards require a security deposit; whether and how fees are assessed; and, most importantly, what benefits they offer consumers. Many large bank card issuers compete for customers with increasingly tailored reward programs, like bonuses for popular spending categories like groceries or eating out. Further, many large bank card issuers offer new customer benefits like creating premium airport lounges; offering travel credits; and early access to popular reservations and concerts. Many of the co-branded credit cards that the CFPB vilifies have reward rates as high as five percent, member-only discounts, and access to signature events that are special for that particular customer segment, as tailored as free monogramming; as pragmatic as priority boarding and free checked bags; or as adventurous as game hunting trips in Canada or fishing trips in Costa Rica.

Large banks are constantly investing in improving the customer experience and safety of credit cards.

These innovations make credit cards easier and more secure to use. These product features, like the ability to break up larger purchases in manageable payments; the ability to create one-time-use “virtual” credit cards; more sophisticated digital and mobile experiences and broader branch networks; and including artificial intelligence-powered interfaces and fraud alerts that identify questionable transactions for consumers foster competition in the marketplace. The CFPB’s data point also glosses over that large banks may be subject to different regulatory requirements than smaller institutions. As CBA has previously documented, the Basel III Endgame proposal will only impact large financial institutions and will materially impact those banks’ ability to offer credit cards to consumers – particularly low-to-moderate income and minority populations. The CFPB is similarly increasingly issuing requirements that only target large issuers, cutting procedural corners that reflects convenient politics as much as policy goals, and furthering these differential compliance and regulatory cost issues. Indeed, the CFPB’s own proposed rulemaking on the Federal Reserve Board’s late fee safe harbor estimates that it could cause credit card interest rates to rise as much as two percent.

The CFPB seems to conflate its consumer protection mandate with authority over setting prices or product features.

Although the CFPB may not acknowledge it, different consumers have different needs and preferences – something that is foundational to a free-market economy where consumers have ample choice. A well-functioning market includes different products at different price points, depending on those needs and preferences. CBA has previously demonstrated the CFPB’s claims about a lack of competition in the credit card market are patently wrong. Consumers can choose from a broad range of credit card offerings. The CFPB’s survey of issuers that their datapoint is based off even shows over 640 individual credit card products. And the CFPB’s latest CARD Act Report notes that there are nearly 4,000 credit card issuers in the United States. The CFPB’s own data shows:

• The average consumer has nearly four credit cards. Even within households, consumers use different credit cards for different types of purchases.
• The market share of large credit card issuers is declining.
• In one year alone, consumers transferred over $53 billion in credit card balances from one issuer to another – that is greater than the total holdings of each but the top seven credit card issuers. And in one month alone, credit card issuers sent over 610 million marketing items to consumers seeking to win their business.

The Bottom Line

Across markets and beyond its statutory authorities, the CFPB continues to insist on one-size-fits-all products. This hinders innovation and worse, harms competition and ultimately consumers. American consumers deserve a regulator that respects Congressional intent and the law that understands how markets work and sticks to the facts; and understands how regulatory overreach can limit consumer choice, consumer utility, and ultimately consumer financial resilience.

CBA Advocacy

Late last year, CBA produced a four-part series to contrast the CFPB’s CARD Act Report press release against reality, primarily using the data from the Bureau's own research. Read the full series HERE.