CFPB Seeks Input on Credit Card Market, Including Collection and Debt Sales Practices

The Consumer Financial Protection Bureau (CFPB) announced Tuesday it is seeking public comment on how the credit card market is functioning and the impact of the Bureau’s credit card protections on consumers and issuers. This inquiry will focus on issues including credit card terms, the use of consumer disclosures, credit card debt collection practices, and rewards programs.

“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,” said CFPB Director Richard Cordray. “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.”

In 2009, Congress passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, with the goal of bringing fairness and transparency to the credit card market. The CARD Act requires that the CFPB conduct a review of the consumer credit market every two years.

With the Request for Information, the CFPB is seeking to gather more information on how the credit card market is functioning and the continuing effects of the CARD Act on consumers.

For the ARM industry, the CFPB wants to hear about debt collection practices employed by both creditors and third party vendors related to credit cards.

In its press release announcing the information request, the CFPB briefly noted that it is “looking for information on the collection of past due amounts on credit card accounts as well as debt collection practices within the credit card industry. Other areas the CFPB is seeking input on include how often card issuers use third-party collection agencies and how those relationships are managed.”

But in the Federal Register submission of the request, the Bureau went into more detail. The request is set to be published in the Federal Register on March 19. The comment period will be open 60 days from the publication date.

While acknowledging that debt collection is “an important part of any credit system,” the CFPB said that it is an “area fraught with risks to consumers” and it would like to better understand debt collection practices in the credit card industry. The request then asked specific questions that seem to be directed more toward ARM industry stakeholders than consumers:

• What practices are used to minimize losses from delinquent customers prior to chargeoff and with what results?
• What practices are used to secure recoveries post charge off and with what results?
• To what extent do card issuers use third-party contingency collection agencies for collections of accounts and how are such relationships managed?
• To what extend do card issuers sell charged off accounts to debt buyers and on what terms and with what restrictions?

In addition to matters relating to debt collection, the CFPB is seeking input on a broad range of issues in the credit card market, specifically:

• The terms of credit card agreements and practices of credit card issuers
• Unfair or deceptive acts or practices in the credit card market
• Consumer understanding of rewards products

Outside of the named areas “of further interest,” the request is fulfilling the mandate in the CARD Act to review the impact of the new rules put into force in 2010. The Bureau asks a number of questions related to impact such as how implementation has affected the cost and availability of credit and card product innovation in the industry.