On Dec. 19, the Consumer Financial Protection Bureau (CFPB), a federal regulator, announced it was launching a public inquiry into the workings and impacts of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "Credit CARD Act").
Credit card regulation under scrutinyThe regulator has issued a Request for Information Regarding Credit Card Market (PDF), which invites members of the public, credit card companies, industry groups and consumer advocates to submit information and comments across a range of topics, including:
- How have credit card agreements changed?
- How have card companies' practices changed?
- Are the disclosure aspects of the CARD Act working?
- Are consumers now adequately protected against deceptive practices?
- How has regulation affected the cost and availability of credit?
- Has the Act damaged any card issuers' businesses?
- Are credit card companies still pricing their products according to the risk posed by individual consumers?
- Has the law either fostered or discouraged innovation in the industry?
Act working?Some likely impacts of the Credit CARD Act emerged during a Feb. 2011 CFPB conference. According to a recent press release issued by the watchdog's communications office, this found the law had done the following:
- Significantly reduced the practice among many credit card companies of hiking interest rates on existing customers.
- Slashed the late fees charged to consumers paying past due.
- Almost eliminated over-limit fees.
Or unintended consequences looming?On the face of it, these may appear to be desirable outcomes, but some caution against the dangers of regulation in private marketplaces. Will government intervention bring about unintended consequences? One law practice that acts for many clients in the financial services sector is Pillsbury. On its website, the firm warns that the Credit CARD and Dodd-Frank Acts open a "Pandora's Box of new regulations in every segment of the industry…" And it goes on to brand the CFPB "a wildcard." Pillsbury's concern seems to be based on the CFPB's powers, which allow it both to issue and interpret almost all federal laws and regulations surrounding consumer lending.
Two sidesConsumer advocates, on the other hand, point to the ease and speed with which credit card companies' highly paid lawyers have found and exploited loopholes in previous attempts at regulation. Unless the CFPB has the agility to close such loopholes quickly, and the teeth to deter undesirable practices, then unscrupulous lenders will likely to continue to find ways to prey on the financially vulnerable.
There seems to be some validity in both those arguments, and ultimately it's down to elected legislators either to choose between the two or to try to reach some compromise that acknowledges the concerns of both sides. It's almost -- though possibly not quite -- enough to make you feel sorry for U.S. representatives and senators.