welcome. welcome to the consumer financialprotection bureau's field hearing in chicago, illinois, at the beautiful harold washingtonpublic library. we are here to discuss the effects of the card act. the consumer financialprotection bureau, or the cfpb, is an independent federal agency whose mission is to help consumerfinance markets work by making rules more effective, by consistently and fairly enforcingthose rules, and by empowering consumers to
Exxon Mobil Credit Card Login, take more control over their economic lives.my name is zixta martinez. i am the associate director for external affairs at the cfpb. today's field hearing is being live-streamedon our website at consumerfinance.gov, and you can follow cfpb on twitter and facebook.you can also file a consumer complaint at
consumerfinance.gov, by u.s. mail, by fax,or by calling 1-855-411-2372. that's 1-855-411-2372. i am going to spend just a few minutes tellingyou about what you can expect at today's field hearing. first, you will hear remarks fromdirector cordray, who will talk about the bureau's card act report. following the director'sremarks, cfpb assistant director marla blow will lead a discussion with a panel of experts,who will also talk about the impact of this card act on this market. assistant directormarla blow will be joined by the cfpb's deputy director, steve antonakes. following the panel discussion is my favoritepart, the audience participation portion of the field hearing. this audience participationportion is an opportunity for us to hear from
you about what's going on in your communityin the consumer finance markets, and our audience today includes community leaders, advocates,industry representatives, and of course, consumers. our audience also includes the members ofthe cfpb's credit union advisory council, which is holding its quarterly meeting herein chicago. we also are pleased to welcome bipartisan congressional staff from the officesof senator mark kirk, congresswoman jan schakowsky, congressman luis gutierrez, and congressmanmike quigley. thank you all for joining us here today. so let's get started. i am now very pleasedto introduce richard cordray. prior to his current role as the cfpb's first director,richard cordray led the cfpb's enforcement
office. before that, he served on the frontline of consumer protection as ohio's attorney general. in this role, he recovered more than$2 billion for ohio's retirees, investors, and business owners, and took major stepsto help protect consumers from fraudulent foreclosures and financial predators. beforeserving as attorney general, he also served as ohio state representative, ohio treasurer,and franklin county treasurer. director cordray. [applause.] richard cordray: thank you, zixta. thank you so much for all of you being heretoday, and i want to thank you especially
because, as i was sitting here, i noticedwe had been here already for a time this morning, that all of you somehow brought the sunshinewith you today, so thank you. i am always happy to be back in chicago, wherei spent 3 good years as a law student, and noting that this is the harold washingtonpublic library, i had a nice story about harold washington and the parrots of the south sideof chicago. but i will not belabor you with it here. we are hosting this field hearing to discussthe effects of the credit card accountability responsibility and disclosure act, a law commonlyknown as the card act. the card act was passed with the specific goal of making the creditcard market fairer and more transparent for
consumers. today, we are releasing a reportthat congress required us to prepare about the impact of the card act on the marketplace. before we discuss the results of our report,however, it is important to describe conditions in the marketplace when the card act was signedinto law. the economic landscape in may 2009 was quite poor. the housing market had crashed.unemployment had risen to 9.4 percent. a whopping 14.5 million people were out of work, andthat number was expected to continue to grow. gross domestic product had moved sharply intonegative territory, falling by 8.3 percent and 5.4 percent in the previous two quarters,and the federal reserve was predicting it would drop even further.
at that time, i was serving as ohio's attorneygeneral, and we saw firsthand how hard people were struggling to stay afloat. particularlywith respect to credit cards, people were extremely frustrated, and they were complainingloudly and frequently about being dinged by unexpected fees and about dealing with cardagreements full of fine print and legalese they could not decipher or understand. thebottom line at the time was that consumers had no good way to assess the true cost oftheir credit card up front. some members of congress became interested in how to addressthe challenges raised by their constituents, and the federal reserve had swung into actionto develop some new rules in this area. against that backdrop, congress passed the card actto address troublesome practices and reform
the credit card markets. one problem that consumers faced was hidden,excessive, and unfair fees. these fees made it hard for consumers to anticipate cost.in some cases, they could not avoid these fees and did not know they were coming. maybea consumer's check payment was due on a holiday and there was no mail delivery, so the checkwas not received in time, or maybe the consumer unwittingly spent more than the credit line.some consumers set up mechanisms to pay their bills regularly but were ambushed when paymentdue dates changed from month to month. in these cases, the consumer would be chargedan unexpected fee. the card act took action to address each ofthese problems. the law set standards for
when late fees can be assessed. congress establishedthat credit card bills must be due on the same date each month and that card issuersgenerally cannot charge a late fee unless consumers are given at least 21 days to paytheir bill. the law also established limits on how much can be charged in late fees. as a result, we found that the average sizeof late fees declined since the passage of the card act. based on the credit card accountswe studied, representing most of the market, we estimate that the average late fee decreasedby $6 after the card act took effect. that means these consumers paid $1.5 billion lessin late fees in 2012 than they would have paid had late fees remained at their pre-cardact levels.
the card act also tackled over-limit fees,which often surprised those consumers who had no idea they had spent past their creditlimit. prior to the law, card issuers could charge a fee for transactions that put cardholdersover their credit limit, and each over-limit transaction could result in an additionalfee. the card act barred companies from charging a fee to cardholders who exceed their creditlimit unless the cardholder has affirmatively opted in to pay over-limit fees. additionally, card issuers can no longer chargemore than one over-limit fee during a billing cycle. with these changes, over-limit feeshave been largely eliminated as a source of cost to consumers and revenue to issuers.based on the credit card accounts that we
studied, we estimate that if everything elsehad remained equal except for the changes made by the card act, those consumers wouldhave paid about $2.5 billion more in over-limit fees in 2012 than they actually paid. we did find that annual fees and interestrates have increased since 2008, which indicates a shift from hidden back-end pricing towardmore transparent front-end pricing that consumers can understand and evaluate more easily. evenmore significantly, however, we found that the total cost of credit, which includes allfees and finance charges, declined between 2008 and 2012 by 2 percentage points. consumers were also struggling with a lackof transparency when it came to their credit
cards. credit card agreements were long anddifficult to understand. these agreements often contained provisions which allowed thecredit card issuer to hike the rate if the consumer tripped any of several complicatedwires, including the notorious universal default. cardholders would open their monthly statementsand be surprised to find that their interest rate had jumped. credit card agreements alsoallowed issuers to change the terms at any time and for any reason, and the new termscould be applied to existing balances. such price changes made it difficult for consumersto predict the cost of their credit card and manage their finances accordingly. the cardact sought to make credit card costs clearer to consumers, and we found that it dramaticallyimproved overall transparency in the market.
in order to address unexpected interest ratehikes, the card act generally stopped card issuers from increasing the interest rateon an existing balance unless the cardholder has missed two consecutive payments. the lawalso added new requirements for monthly statements. now the statements must include useful information,like how long it will take to pay off the bill if the consumer pays only the minimumamount due and how much doing so will cost the consumer. these disclosures give consumersa clearer sense of the consequences in deciding how to handle their credit card payments. the card act's new disclosure requirementsand the end of surprise interest rate increases resulted in a market where pricing is morepredictable and transparent for consumers.
in this market, shopping for a credit cardand comparing costs are far more straightforward, and every credit card user can now make apurchase confident that when the bill comes due, the interest rate will not have skyrocketedwithout notice. they can count on the fact that if they make their payments on time,the terms of the deal they made at the time of purchase are the terms of the deal theywill live with over time. we also determined that credit card contractshave become shorter and easier to understand in recent years. our report showed that thecard agreements we studied from the largest card issuers have decreased by more than 2,000words on average and that readability has gone up, making the market more transparentand accessible for consumers. this is not
something the card act required, but it issomething we have been urging in order to help consumers process the key informationmore easily, so they can know before they owe. many card issuers have chosen to embrace thespirit of the new law in this respect. we applaud those who are making this effort,we will continue to push others to follow their lead and make further changes, and weremain willing to work with credit card issuers in finding ways to serve their customers better. consumers have responded positively to thesemarket-wide changes. when j.d. power released its 2013 u.s. credit card satisfaction study,it showed credit card satisfaction is at an
all-time high since the study was first conducted.significantly, the study concluded that overall, customers appear to be increasingly happywith their credit cards, and j.d. power explicitly attributed some of that satisfaction to thecard act. we also believe that the increasing satisfactioncustomers are expressing about their credit cards reflects the manner in which some issuershave intensified their focus on customer complaints. more operations are prioritizing and incentivizingefforts to remediate individual complaints and to analyze and respond to patterns inthe complaints they receive. these are powerful market developments that naturally improvecustomer service and customer loyalty. they also pay tangible dividends by reducing legalrisk, reputational risk, and regulatory risk.
needless to say, we are very much supportiveof these trends. in order to get a complete view of changesin the credit card market, we examined the overall availability of credit. credit availabilitystarted declining in 2008, before the card act had even passed, but after the financialcrisis had begun, and by most measures began to rebound in 2009. this is not surprising.credit is known to be cyclical, and the nation's economy was experiencing its sharpest downturnin decades. so as the crisis hit, credit losses ensued, and creditors implemented more restrictivecredit standards. even with the changes that occurred during these unusual economic conditions,consumers with credit cards still have plenty of available credit overall; in fact, thereis currently about $2 trillion worth of unused
credit in the market. the card act has provisions that were explicitlydesigned to better protect young consumers from getting credit cards they cannot afford.in the years prior to the card act, it was often too easy for students to rack up creditcard debt they could not pay back and damage their credit rating for years to come. when i was serving as the treasurer of ohio,i heard many bitter complaints from parents about the aggressive marketing practices oncollege campuses that targeted naã¯ve 18-year-olds just away from home for the first time. withthe card act, consumers under the age of 21 cannot get a credit card unless they can demonstratean independent ability to repay the debt or
unless they have a cosigner over the age of21. our report found that the number of credit card holders under 21 has been cut in halfin recent years. this decrease, which contributes to the decline in available credit, is anintended consequence of the card act and is good news in promoting responsible accessto credit. we have seen two other factors that may becontributing to the dip in available credit. first, we have seen a notable drop in thenumber of consumers who receive unsolicited credit line limit increases on their accounts,meaning that more consumers have to ask for their credit limit to be raised rather thanhaving it happen automatically. second, the ability-to-repay provisions inthe new law have had at least a modest effect
on credit availability. we have seen thatat least a small slice of consumers whose card issuers may deem to be creditworthy havebeen declined for credit cards because they cannot prove they have the means to pay backthe potential debt. we addressed one such issue that came to ourattention by issuing a new regulation earlier this year. this rule made it easier for stay-at-homespouses or partners to get their own card if they have access to resources that allowthem to make payments. consumers need access to credit. we simply want to ensure that theyhave responsible access to credit. although the card act effectively addressedmany problematic practices in the market, we do highlight a number of outstanding concernsin our report. one area of concern is credit
card add-on products, where we have seen firsthandhow the deceptive marketing of these products can harm consumers. the bureau has alreadyissued a bulletin to put issuers on notice of these problems, and we have brought severalenforcement actions that have put more than $700 million back in the pockets of consumers.we will continue to use both our supervisory and enforcement authorities to protect consumersby rooting out unfair, deceptive, or abusive acts or practices. second, we recognize that some card issuerscharge up-front fees that exceed 25 percent of the initial credit limit, which is thecap on fees that the card act sought to impose, but those practices have been held not tobe covered by the law because a portion of
the fees are paid prior to account opening.we plan to keep a close eye on how card issuers use application fees in connection with openingaccounts, and we will determine if we should take action under our available authorities. third, we plan to study the impact of deferredinterest products. these are credit cards that come with a zero percent interest ratebut with a catch. if the balance is not paid in full by a certain time, the company willassess interest retroactively. the data we have obtained indicates that over 40 percentof borrowers with subprime credit histories end up being charged retroactive interest.we will be examining the risks and benefits of such products, and we will take actionif it appears to be justified.
fourth, we have identified a number of areasin which transparency concerns remain. one of these areas relates to online disclosures.while the card act requires certain disclosures to appear on monthly statements, those consumerswho pay their bills online may never see the disclosures. we will be monitoring the stepsthat card issuers take to provide consumers with these beneficial disclosures when theyaccess their accounts in different ways, and there's a more general issue for the bureauin terms of how to handle online disclosures generally that we are thinking hard about. fifth, we are concerned about the qualityof disclosures that are made about rewards products. many consumers are picking theircredit cards based on rewards programs. these
offers, however, can be highly complex, asconsumers may face detailed and confusing rules about how they can actually use theirrewards. we will be reviewing whether rewards disclosures are being made in a clear andtransparent manner, and we will consider whether additional protections are needed. lastly, we are concerned about the disclosuresused to inform consumers about grace periods. most cards allow consumers to avoid payinginterest on purchases when they pay their balance in full each month. this period betweenthe end of a billing cycle and the payment due date is called the "grace period." wewant to make sure that consumers know that once they carry a credit card balance intoa new month, they no longer have a grace period
on new purchases. while we have not yet studiedthe level of consumer understanding about grace periods and how they work, it is anarea that merits our future attention. our card act report was a comprehensive undertakingwhich showed that on the whole, the card act accomplished a number of its intended goals.based on the information we have available to review changes in the credit card market,the act eliminated many unfair fees, made some market practices more transparent, pavedthe way for easier comparison shopping, and created a market where consumers can see thecosts up front. these changes are critical to strengthening consumer protections in themarketplace and helping us rebuild our economy. today's report was based on extensive research.we looked at data spanning the period from
before the law was passed through december2012. to dispel any myths, let me just say that we use anonymized industry data to betterunderstand how the markets are working. we never receive a card holder's name or otherdirect or unique identifiers. we never receive information describing the specific transactionson any account, and we do not monitor any individual's financial transactions. we areinterested only in market trends, and as a result, the data is limited to items likeinterest rates, account balances, total purchases, total payments, and fees charged to consumers. in fact, for purposes of this report, industryparticipants submitted to us analyses they developed from similar data. without all ofthis information, we would not be able to
study the market, to understand the benefitsof the card act, and to flag areas of possible risk to consumers. in short, we would notbe effective in carrying out the responsibility to report to congress and to the americanpublic. today, i am looking forward to vigorous discussionsabout the state of the credit card market and the impact of the card act on both consumersand the industry. thank you all for joining us. zixta q. martinez: thank you, director cordray. at this time, i would like to invite deputydirector steve antonakes, assistant director marla blow, and our distinguished paneliststo please take the stage.
as the panelists are making their way to thestage, i am just going to take a moment to thank those joining us by live stream andto remind folks that they can follow us via twitter or facebook, and you can also filea consumer complaint at consumerfinance.gov, by u.s. mail, by fax, or by calling 1-855-411-2372. before we get started with our panel discussion,let me introduce marla and steve. marla blow is the assistant director of the card andpayment markets office at the cfpb. she joined the bureau in january 2011, following 8 yearsat capital one. her experience at capital one included work in the risk management,finance, marketing, and corporate development teams. before joining cap one, she held avariety of capital markets and investment
banking roles on wall street. also joining today's panel discussion is steveantonakes. steve antonakes joined the cfpb in november of 2010 as the assistant directorof large bank supervision and was named the associate director for supervision, enforcement,and fair lending in june 2012. his background includes more than two decades as a financialservices regulator. in september, he was also named cfpb's deputy director, along with hiscontinuing role as associate director for supervision, enforcement, and fair lending. marla and steve, you have the floor. marla blow: good morning. it is a pleasureto be here, and in this beautiful space, i
am appreciating chicago. and i just want todo a little bit to frame up the conversation and then introduce the panelists, and thenwe'll begin with some questions and give the panelists an opportunity to make some openingstatements and opening remarks, and then we will proceed with the conversation. but i just want to lay the groundwork forwhy we did this report. as director cordray mentioned, it was required in the statute.it is something that we will be doing every 2 years, but this is the first one, and it'stime to coincide with 2 years from the last major implementation date of the ability-to-payprovision of the card act, and that timing was october of 2011. so as a result, we targetedreleasing our report october of 2013, and
that way, here we are today. there were specific topics that were listedin the statute as areas that we needed to contemplate and look into and report on. theywere the terms of credit card agreements and the practices of credit card issuers and howthey have changed in the wake of the card act. it's the effectiveness of disclosure. oneof the big parts of the card act was some new disclosure requirements, and we did whatwe could to look at the impact of those disclosures. the adequacy of protections against unfair,deceptive practices. director cordray called out a number of the areas that are still remainingconcerns. those are things that we identified
as a result of taking a look at what we thoughtthe adequacy protection is today. the extent to which and whether the implementationof the act has had an effect in a number of areas. one, on the cost of credit, and thatis whether there's been any meaningful increase in particular that credit—one of the bigcriticisms of the card act was that it would make credit more expensive, that consumerswould end up actually having to pay more, and one of the things that we—that as mentionedhave already determined is that in fact that was one of the things we did not observe,that on a per-dollar borrowed basis, consumers actually are paying less. that is driven primarilyby the limitation on penalty fees. we'll have an opportunity to talk about that potentiallyin a little bit more detail.
in addition to that, we were asked to lookinto the availability of credit. one of the other charges was, with all these changesbrought about by the card act, there will be less credit, period. we mentioned earlierthere has been a change in the availability of credit; that has been a reduction. butcredit remains plentiful, and unused credit lines still stand at $2 trillion, as mentioned.and importantly, about $40 billion of that $2 trillion is available to consumers withsubprime credit scores. so again, that market was an area where there was significant expressionsof concern that that is a place where there will be the most sort of disproportionateimpact, but with $40 billion still of unused credit available in that space, there is stillcertainly activity there.
we were asked to look at the use of risk-basedpricing, which is a practice of assigning interest rates on the basis of the creditworthinessof the applicant, and we found that risk-based pricing actually does continue. and there'smore detail, but part of the concern was that this would require some standardization orthat everybody would need to get with the same interest rate, and that would in effectraise interest rates, particularly for consumers that had better credit scores. and what wefound is that risk-based pricing actually does continue, and that there is still amplestratification of the credit card market. and then the last thing we were asked to lookat was innovation, and one of the charges was that the card act would essentially puta lid or sort of quell innovation in this
industry. and we make some remarks on that.innovation is a difficult thing to measure, and it's somewhat in the eye of the beholder.but we did take a look at some of the things that have changed and the ways in which thecredit card market has capitalized on social media, new technologies, other opportunitiesin the market to really change and innovate around communication and interaction withconsumers. so that's a high level, sort of—those arethe topical areas in the report and very high-level findings of what you can find in there. let me turn to introducing the panelists andthank everybody for joining us. i will start with lauren saunders, who is on my left, yourright. lauren is the managing attorney at
the national consumer law center, where shehandles legislative, administrative, and other advocacy efforts in the financial servicesarea. she has testified before congress and contributes to several nclc manuals, includingconsumer banking and payments law, fair credit reporting, fair debt collection, and foreclosures.she previously directed the federal rights project of the national senior citizens lawcenter, was deputy director of litigation at— lauren saunders: bet tzedek legal services. marla blow: —bet tzedek legal services—thankyou. i apologize—and was an associate of the public interest firm hall & phillips.she graduated from harvard law school where
she was executive editor of the law reviewand holds a master's degree in public policy from the kennedy school, as well as ba fromstanford university. thank you, lauren, for joining us. david yen, right next to lauren, supervisoryattorney at the legal assistance foundation of chicago. david serves as supervisory attorneyfor legal assistance foundation of chicago. he previously worked for legal services corporationof alabama, which is now known as legal services alabama. he specializes in bankruptcy casesand is a graduate of the university of pennsylvania. ed mierzwinski has been a consumer advocatein the washington, d.c.-based federal lobbying office of the national association of statepublic interest research groups since 1989.
he frequently testifies before both congressand state legislatures and has authored or coauthored numerous major reports on a widerange of consumer issues, including financial reform, cable television rates, telecommunicationsreform, banking, financial services, and identity theft and product safety issues, includingtoy and playground safety. mr. mierzwinski is a founding member of the trans-atlanticconsumer dialogue and represents u.s. pirg on the tacd steering committee. turning to the other side of the panel, onthe far right, we have sanjay sakhrani. mr. sakhrani covers a diversified financial sector,with specific focus on credit card issuing and payments companies at keefe, bruyette& woods. prior to kbw, mr. sakhrani was at
calyon securities, where he followed the specialtyin mortgage finance sectors. he also spent 5 years within citigroup's u.s. equity researchdepartment's specialty and mortgage finance team. he has a bs in finance from st. john'suniversity and an mba from cornell. mr. sakhrani has been recognized as one of the leadinganalysts in the consumer finance industry. he took the top spot in institutional investors'all america research team in 2012, after finishing as a runner up in the prior year. he has alsobeen named at a top stock picker in wall street journal's best on the street survey and placedprominently in recent greenwich associates' annual rankings. next to sanjay, we have mary dunn. mary dunnis the senior vice president and deputy general
counsel in the credit union national association'swashington, d.c., offices. ms. dunn is the chief staff liaison to cuna's examinationand supervision subcommittee and to the cuna federal credit union subcommittee. she's alsoa liaison to the cuna governmental affairs committee and community credit union committee.she writes a bimonthly column for cuna's credit union magazine and oversees the productionof cuna's reg watch and regulatory analyses on all proposed and final regulations affectingcredit unions, as well as operation comment, cuna's website to facilitate comments fromthe credit union community to regulators. and next to zixta, we have bill johnson. billis the ceo of citi retail services, the division of citi's global consumer banking businessthat provides consumer and commercial credit
card products, services, and integrated retailsolutions to national and regional retailers across the united states. the business servicesnearly 90 million accounts for a number of iconic brands, including the home depot, macy's,sears, shell, and exxonmobil, among others. mr. johnson is also responsible for the operationalrisk management and risk operations, functional utilities, supporting all four of citi's northamerican consumer businesses. these utilities which focus on driving effectiveness and efficiency,while protecting the citi franchise, were established in may of 2013. please join me in welcoming all the panelists. zixta q. martinez: at this time, we want toinvite the panelists to just give us a very
quick overview of their general observationin connection to our card act, and why don't we start with lauren, and then we'll kickit off with sanjay. lauren saunders: okay. thank you for the opportunityto be here today and to talk to you all about this very thorough and very interesting evaluationof the card act. i worked on the card act, along with a number of other people—i'msorry? marla blow: pull your mic closer. lauren saunders: oh. and it is so helpful to have this report tobe able to look back retrospectively at its impact, and i can say, you know, i think itreally shows how the absence of smart regulation
to protect consumers can at times lead toa race to the bottom and the wrong kinds of competition, and that the presence of smartregulation helps everybody, both consumers and the industry. before the card act was passed, there wasthis race to the bottom, all sorts of competition at the front end about aprs and rewards, butat the back end, a lot of people were trying to figure out how to ding consumers with back-endfees, retroactive interest rate hikes, and other manipulations that consumers didn'treally understand. not only did these practices harm consumers, they also harmed the betterplayers in the industry who tried to avoid them, because they didn't get the benefitof doing something in a straight, honest way
if their competitors were making a lot ofmoney by engaging in tricks. citi, for example, announced that it would not hike interestrates for consumers who were paying on time, just because something else happened in therest of their market, and yet the rest of the industry for the most part didn't followthat, an obscure issue that consumers couldn't understand. so we think that it has definitelyhelped people to understand their cards, and it shows how regulation can work. zixta q. martinez: thanks, lauren. david. david yen: before—let me just offer a disclaimer,so the opinions that i give are my personal opinions and not those of the legal assistancefoundation.
so one of the most common kinds of cases thatwe see are credit card collection cases, and in that context, it's always been hard toknow exactly why the consumer is in the fix. was it because of some abusive problem, orwas it just misfortune or overextension of credit? on top of that, in recent years, wehave seen a lot of lawsuits brought by debt buyers, so that it's even harder to figureout why the lawsuit is being brought. sometimes they don't even owe the money or they don'tunderstand where the debt came from. but that said, i do think that we've seenfewer cases where we can identify these sorts of abuses that were addressed by the cardact as being the cause of the default. so it seems that our anecdotal evidence coincideswith what's in this report.
at the other end, we have clients—i talkto clients who don't have credit cards, and a lot of them don't want to get credit cardsbecause of the things that either they've experienced or that they've heard about theways you can be tricked into getting in over your head. one unfortunate side effect ofthat is that they are more vulnerable. when they do have a financial crisis, they don'thave a credit card already, and they go to the worst credit providers. if any of thoseare in the room, i don't mind offending them, you know, the payday lenders, the title lenders,and some of the really other kind of below-subprime products. so if there's any way that—ifthe market has improved as much as we—as it seems to have, i hope that eventually myclients will be willing to get back into the
credit card pool, because the other alternativesare so much worse. zixta q. martinez: thanks, david. ed. ed mierzwinski: thank you, zixta. and as marla said, i came to washington in1989, and credit card problems existed in the 1990s, and credit cards were extremelyprofitable throughout the 1990s. the federal reserve does an annual report to congress—creditcards, most profitable form of bank lending, end of story. but in 1999, there was a culturechange, in my opinion, when congress deregulated banking, and the wall street boys came inand said every year, you've got to make even bigger profits in every division, and so thecredit card companies really started to ratchet
down the thumbscrews, as director describedsome of the practices. first, they went after the late pays. nobodycares about late pays. they simply said to the late pays, "a late fee is not good enough.we are going to triple your interest rate." now, do the math. if a credit card has a 2percent minimum payment—that's approximately what they've always been—but the interestrate is raised to 36 percent, divide that by 12. that's 3 percent a month. your interestis going up 3 percent, and if you are only able to afford the minimum, 2 percent, youare losing ground. you are ratcheting up credit card debt. then they said, "well, let's have more peoplepay late, so let's trick them into paying
late," and the director articulated a numberof the things they did, making bills do on a sunday, saying that a bill that arrivedafter 11 a.m. was late, changing the due date, et cetera, tightening the period between whena bill was sent and when it was due. and that was a big moneymaker for the credit card companies,but we couldn't get congress to listen. from 1999 to 2004, i can only recall two hearingson credit cards, and we couldn't even get a vote on a bill. we had bills. we couldn'teven get a vote on a bill that we would of course lose to try to fix the system. but then the credit card companies startedto overreach. they invented what the director called "universal default." they said, "evenif you've never been late to us, we're going
to raise your rates again, retroactive rateincrease on your existing balance to 30 or 36 percent if you've been late to someoneelse." and then in 2005, to show you the power of the credit card industry, despite the heroicefforts of a coalition of labor, civil rights, consumer, and other organizations, with thehelp of professor elizabeth warren, the congress gave the credit card industry this awful bankruptcybill that allowed them to collect more money from people who didn't have it to pay them. but then the credit card industry made itsbiggest mistake, and that was to invoke the "we can change the rules at any time for anyreason, including no-reason clause." they raised everybody's rates, and against thebackdrop of the financial crisis in 2006,
2007, we finally got the leverage to passthe act. it is an example of good legislation, good regulation that works to better alignthe interests of the producers in the market with the consumers in the market, and nowwe're fortunate we have the cfpb to enforce the law. zixta q. martinez: thanks, ed. sanjay. sanjay sakhrani: thank you, and good morning.my name is sanjay sakhrani. i echo the previous remarks. i think the updatereport was very thorough and informative. just to give you guys some context as to whati do for a living, i consult with the investment community on the fundamentals of the creditcard industry. having analyzed the credit
card space for about 12 years, i think thecard act was certainly a piece of legislation that was very unique in—relative to otherrules that have come out over time, in that it aimed to eliminate a number of very favorableprofitability practices for the credit card industry. while there are other aspects to the law,i'd say the key areas that impacted the issuers from a fundamental perspective were as follows,based on our opinion: the significantly diminished ability to re-price customers, the eliminationof double-cycle billing, over-limit fee option being abolished or substantially curbed, andcaps being applied to late fees. i think the impacts that have been apparentto us, both in analyzing the industry and
listening to the key players in the industry,are as follows. first, i think the overarching theme was that it leveled the playing fieldacross the space. given the diminished ability to re-price individuals relatively dynamicallybased on their credit performance and across multiple products, issuers basically bridgedthe gap by raising aprs or yields fairly unilaterally across their customers, with almost a steeperincrease being seen among their better customers. so i think the disparities between aprs acrosssegments narrowed. when looking at some of the competitive forcesat play, pre-card act, like teaser rates, i think the teaser rates have become lessprevalent and significantly less lucrative to higher end consumers.
as far as the impacts from diminished pricingflexibility and lower fee income, we think there's two major impacts. one, it's certainlyled to more rational pricing and less irrational competition, particularly as it relates toteaser rates. second, i mean, i think there's still someempirical evidence that the issuer's appetite to lend to certain segments of the markethave been meaningfully curbed, relative to pre-card act. as far as economic impacts to the card-issuingspace, i think it's clear the companies have priced in the worst-case scenario, and today,credit quality is pretty favorable, so i think the profitability is high, but i think oneshould be very aware that the investment community
as well as ourselves are aware of the factthat when the economy turns for the worst, the profitability or lack thereof will besignificantly worse than we've seen in the past when you think about the—i'm sorry,and then i'll stop there. thank you. zixta q. martinez: mary. mary dunn: yes. thank you, zixta, and goodmorning. and thank you, director cordray and deputy director antonakes. it is really aprivilege and a pleasure to be with you today. i'm kind of blinded by the sun, so i can'treally see any of you out there. so if you are scowling at me or if you're asleep, ireally can't tell. so i'll just continue on with my comments.
but it is a pleasure and a privilege to behere. you know, every time we get an opportunity to have policymakers in the room, we liketo talk about the distinctions that make credit unions unique, particularly with the creditunion advisory council sitting there on the second row and so many friends there. buti think it's very relevant for the discussion this morning. credit unions don't view themselvesas part of the credit card industry. we view ourselves as cooperatively owned financialinstitutions that provide credit cards and other services because our members want them. having said that, we do support and appreciatethe proactive role that the cfpb has taken in implementing the card act, and i'm goingto talk a little bit more about that in just
a minute. credit unions are unique, though, becauseof many factors. one of them is the way that credit unions by law can build their capital.every financial institution to stay in business has to have capital. credit unions can onlybuild capital through retained earnings, which includes things like fees. there are costsassociated with credit card programs and other services that credit unions provide theirmembers; nonetheless, despite pressures to build capital from regulators and others,credit unions work very hard to keep their costs down, including on credit cards. i've got a lot of statistics that i couldshare with you, but bottom line, on a non-rewards
card program, a consumer that uses a creditunion is going to save about $100 a year with that credit card program. that's a big savings,and that's important to all of us. we do appreciate that the cfpb has proactively,as i said before, implemented the card act. cuna, the credit union national association,which i represent, which represents credit unions across the country, supported the objectivesof the card act, and we do appreciate, as the director reported today, that the actis working. there are many— zixta q. martinez: bill. bill johnson: thank you. pleasure to be here.appreciate the invitation and the opportunity to speak on our views around the card act.
citi is committed to earning our customer'strust by offering excellent service, solutions that simplify their financial lives, and financialproducts that create real value. credit cards offer customers convenience and protectionsthat they cannot get with cash. whether it's filling the tank quickly, building up a credithistory, or replacing that broken appliance that wasn't expected, we deliver value dayin and day out. fundamentally, we at citi, and i believe the industry overall, fundamentallystrive to provide our customers with easy-to-use credit tools to help them manage their lives. to that end, we support the card act in itsefforts to create consistent, understandable rules for the credit card industry. it's ourbelieve that the credit card act has generally
improved the credit environment for consumersby increasing transparency to the cost of credit through better and more consistentdisclosures and in creating consistency in application and assessment of certain fees,such as over-limit and late fees. however, i think as noted in the cfpb's report, itis difficult to discern the impact of the card act on the cost of credit or on the availabilityof credit, as the data is open to different interpretations, and the time period involvedwas extremely volatile. the industry understand significant change to the card act itself,multiple accounting changes, the great recession and the economic effects of that and highunemployment, and the increasing capital requirements. it will be sometime before we better understandthe cyclical and permanent changes that have
occurred and more clearly determined the causeand effect. that said, we believe that a good relationshipwith the cfpb is in the interest of the industry and the better public policy. the best exampleof this is the cfpb's recent efforts in the area of ability to pay. i think that was anarea where the industry provided the appropriate data and instance of issues in which the cfpbresponded, and the changes worked. we believe that continued collaboration withcfpb benefits consumers and the industry. a balanced approach that focuses on consumerprotection and creating broad, equitable access for every customer can be achieved througha thoughtful working relationship that fosters ongoing discussion and seeking solutions thatbenefits all parties.
zixta q. martinez: thank you, bill. steve antonakes: great. so good morning. goodmorning, everyone. thank you for coming. i want to thank our panelists especially. my first question is for sanjay, mary, andbill, and i would ask you all to take a few moments to describe the state of the competitionin the credit card market today on what features are participants competing, and in your views,to that regard, what features do you choose to highlight, and which of these featuresresonate the most with your consumers? so really, first and foremost, talk about competitionin the credit card market and what features you believe are most important. sanjay, wecan start with you.
sanjay sakhrani: yes. i think that's whati mentioned in my prepared remarks, was there is empirical evidence that the credit cardcompanies are focusing away from certain segments into others, and i think one of the prominenttrends we've seen is the issuers are really focused on the transactor, super prime-oriented,good credit customers, so there's a lot of competition in the rewards base by virtueof that. i think, secondarily, where there is a propensityto want to lend to consumers, i think you've seen issuers compete and market products thatare specific to pricing transparency, so some examples of that are discover and citi's simplicitycard. i think those are cards that kind of market themselves as being very convenientand price-conscious to consumers. so i think
that's where we're seeing a lot of the marketingoffers in terms of the lenders, and i think that's what's resonating well with consumers,because you are actually seeing growth in those segments. mary dunn: yes. well, credit unions reallydon't see themselves as competing with banks, for example, in the credit card space. whatthey are trying to do is look for ways to offer programs that their members will benefitfrom, and they do that by looking at the fees and the terms. rates have crept up a little bit, but creditunions have really tried hard to minimize those fees wherever possible, and i thinkthat's one of the biggest values that credit
unions can offer. bill johnson: generally, competition remainsrelatively robust, in that everybody continues to participate and pursue growth. at the sametime, comparative to past years, it's constrained. it's constrained as the revenue streams thathad previously existed have fallen away and as the issuers have had to change a focusaround this new regulatory and operational controlled environment, where we've investedsignificantly in those areas. i think the areas in which we compete continue to be primarilyaround rates and in rewards and the traditional benefits. one of the things i know the industry is lookingat and you see more of is looking for the
emotional connection with customers, whatare the things that excite them, what are the things that cause them to act and behavein a way that we can create and deepen our relationships with them. we don't see ourcustomers as just purely a transaction, but as a customer with which we want to builda deeper, broader relationship and service them with the right products. steve antonakes: great. thank you. marla blow: so i'm going to ask a questionof the consumer panel, consumer advocates panel, and, david, this one is specificallyfor you. how would you describe the satisfaction level of consumers with their credit cards,and has that changed over time? and if you
could have any insight or thought on whatmight have led to those changes, what might be driving changes in consumer satisfactionwith credit cards. david yen: well, i think i'm somewhat handicappedbecause most of my clients—well, all of my clients are either low income or elderly,and i think a lot of them have been self-selected to selected by the credit card companies.the ones who were sort of marginal, they couldn't keep up their relationship with the creditcard. so the ones—clients i have who still havecredit cards are pretty happy with them, but i think a lot of my clients 2 or 3 or 4 yearsago were just on the edge, and that any little thing would push them to the point where theycouldn't keep up with it.
as i said before, i don't see a lot of thelow-income clients entering the credit card market again. i think they think they arenot going to get a credit card, so they don't even bother applying. marla blow: thank you. zixta q. martinez: this next question is forsanjay. what do you see as an opportunity for innovation in this market, and what hasbeen the most compelling recent innovation? sanjay sakhrani: well, i mean, the creditcard technology is a very mature one, and i think the problem has been, you know, whenthinking about making changes, whether or not the benefits outweigh the costs associatedwith making changes.
you know, it's pretty simple to go out andswipe a card and walk away and purchase something, so i think that's been the biggest precluderfor innovation, but i think some areas where there has been some innovation has been arounddata security. obviously, what's happening in the united states is we're moving, i believe,to emv technology, so chip-based technology that's used internationally is moving to theunited states, and i think the argument for it has been that fraud will find its way tothe area where there is the least resistance. and today, it's the united states, which isrelatively less secure because we don't use the chip technology and other countries do. so i think we're seeing some innovation arounddata security and enhancements in cards. there
is this whole idea of tokenization, whichis given the increased prominence of electronic transactions, card issuers and networks areworking together to try to make it easier for people to transact online. and i thinkanother area where there's innovation from the issuers as well as the networks that workwith the issuers is around digital wallets and using data from marketing and loyalty-basedprograms. so i think using the data that they collect from consumers with their permissions,obviously, and utilizing it for their benefits and giving them more value, i think is anarea that the issues are definitely looking into. zixta q. martinez: thank, sanjay.
steve antonakes: ed, in your view, which aspectof the card act has had the greatest positive impact no consumers? ed mierzwinski: well, steve, first of all,i'll just give a two-part answer. i didn't talk before about the benefits to students,of the student provisions. there's a group that did a lot of work in identifying unfaircampus marketing. we were very pleased to find that the report found that those provisionswork. but i think the most important provision ofthe card act is the package of provisions that make it easier to pay your bill on timeand prevent banks from unfairly, retroactively charging higher interest rates to your currentbalance. that package is very important, and
it's really helped consumers. steve antonakes: thank you. marla blow: bill, a question for you. howhas consumer behavior changed? so as in your observations post-card act, in particular,do you see changes in consumer payments or in other ways in which consumers are usingcredit cards? bill johnson: you know, it's a mix. usingthe cfpb's definition of "prime," "super prime," what we've seen is in the subprime—the superprime customer reentered the market and began spending about 18 to 24 months ago, and theyspent pretty robustly and have continued to return, continued to spend.
what we find is that the prime and subprimecustomers have been constrained. they have not been spending at the same level as theydid previously, and they had not up until the last 90 days shown any recovery there.now, whether that is a byproduct of the card act or the recession, i think that's for brighterminds to determine to go through there. i would say that as the economy stabilizes,consumer confidence has improved, and the home values have stabilized as well. we seesome early indications that mid consumers, the prime and the subprime customers, startingto come back in and spend a little bit. as it specifically relates to payment rates,i think we often think about payment rates in terms of the amount of payment relativeto the size of the outstanding. my experience,
customers tend to—don't budget that way.they budget as to pay how they can afford, and there's ample evidence that their paymentbehavior has continued to be relatively constant. the amount of their monthly payments has notchanged materially. however, as a percentage of the outstanding balance, absent the spend,it has increased. so you'd see a payment rate increase, but i don't believe that's an intentto increase payment rate as much as it is the budgeted amount that i normally pay isjust a growing percentage of an outstanding balance, as i don't replenish my payment withnew spend. but again, in the last 90 days, there's beensome evidence that we would say that those lower—the subprime and the prime customerare beginning to reengage in the marketplace.
marla blow: great. thank you. zixta q. martinez: all of the panelists haveeither directly or indirectly touched on this question, but i wondered if lauren could sharesome additional specificity here. what do you think is the biggest remaining consumerprotection concern in the credit card market? lauren saunders: certainly, overall, consumersare much happier with their credit cards, and you can see that on a number of levels.surveys like j.d. powers show better satisfaction. complaints to consumer advocacy organizationsare way down, and complaints to customer service offices in the credit card companies themselvesreflect much better satisfaction. that said, of course, the market is not perfect,and there are still problems out there that
need to be addressed. your report touchedon a number of those, and we agree that credit card add-on products, fee harvester cards,and deferred-interest cards that hit people with a bit retroactive interest payment ifthey miss that payment date remain big problems. but i would say the biggest overall programis that it is still too easy to get way over your head in credit card debt and still toohard to get out of it. we've made some strides in that area. certainly, better tailoringof credit to the younger adults based on their income has helped, and an overall ability-to-payrequirement has helped. but i think we need bigger minimum payments, so people can payoff their credit cards faster, more flexibility for people who get into trouble, and lessmarketing to people who are clearly over their
heads and can't handle more credit. steve antonakes: great. so i have the lastquestion for the panel. it's for mary, and, mary, i would ask for you to tell us in yourview what the biggest challenges are for the credit union industry on a going-forward basis. mary dunn: so thank you, steve. i actuallythink there are two. one of them is remaining nimble enough to provide the services thatour members want, when there are so many options out there in the marketplace. and so the second concern is really a concernthat we share with i think the cfpb, and that is how to make sure that consumers are adequately,maybe even more than adequately protected,
while at the same time allowing financialinstitutions to do their job to provide services in the marketplace. zixta q. martinez: what a terrific conversationwe've had. it's been varied. we really appreciate it. at this time, i ask all the guest paneliststo please rejoin the audience. we are about the start the audience participation part. [pause.] zixta q. martinez: a number of audience participantshave signed up to share comments and observations. it looks like a mic is coming. oh, there itis. let me start all over. it's now time for ouraudience participation part, and a number
of you have signed up to share comments, toshare your observations, and really to tell us what you think. it's also a very importantpart of what the bureau has been doing from the very beginning. we make it a point toget outside of washington, d.c., and hear from folks directly. we want to know what'shappening in your customers in the consumer finance market space. we have a few of you that have signed up.we typically encourage folks to spend about 2 minutes telling us their thoughts, becausewe want to make sure that everyone who signed up has the opportunity to speak their mind. so i'm going to start with the first participant.spencer cowan. chris or julian [ph] will bring
a mic to you. spencer cowan: thank you, director cordrayand the cfpb staff, for holding this hearing on the credit card act. i am spencer cowan,vice president of research, at woodstock institute, a research and advocacy nonprofit focusedon issues of fair lending, wealth creation, and financial systems reform. the card act was passed to limit the worstpractices of credit card issues, and the report you released today demonstrates that it hassucceeded in doing just that, limiting the worst practices. the card act success is duein no small part to cfpb's commitment to holding credit card issuers accountable. we thankyou for your enforcement actions against chase
for charging consumers for services they didnot receive and the action against discover for deceptive marketing practices regardingadd-on products. these enforcement actions show that add-on products, such as identityprotection and credit monitoring, provide little real value to consumers and are beingdeceptively marketed. in addition to taking action when issuers push products on consumerswithout their knowledge, we urge the cfpb to assess whether these add-on products areunfairly or predatorily priced, given the minimal value that they provide. the card act also limited the total fees thatissuers of fee-harvester cards can charge. those issuers, however, are still chargingexorbitant up-front fees that can eat up more
than half of the available credit before borrowerseven use the card. since fee-harvester cards are targeted at low-income consumers withlow credit limits, the high up-front fees can trigger inadvertent over-limit charges.the cfpb should, if possible, restrict the total amount of up-front fees issuers cancharge to 25 percent of the total credit limit. finally, many consumers cannot qualify forcredit cards and look to high-cost, small dollar lenders to access credit. we look forwardto the cfpb's rules regulating this market. our experience in illinois demonstrates theimportance of enacting consumer protections for all high-cost, small dollar loans, notjust balloon payment loans. after illinois regulated small dollar, balloon payment loansin 2005, payday lenders began offering longer
term installment loans with high aprs to getaround regulations. zixta q. martinez: thank you, mr. cowan. spencer cowan: thank you. zixta q. martinez: lucy mullany. lucy mullany: thank you so much for the opportunityto talk to you today. my name is lucy mullany, and i serve as the senior policy associateat heartland alliance for human needs and human rights. i also coordinate a statewidecoalition called the illinois asset building group. my testimony today is on behalf ofiabg. it's a statewide coalition made up of organizations providing and advocating forfinancial empowerment opportunities.
as you consider credit issues today, we askthat overdraft and credit be prohibited from prepaid cards, a product that many of ourparticipants utilize. consumers able to manage credit can access checking accounts, creditcards, and other credit products. for those who cannot, prepaid cards need to stay a safeoption. furthermore, allowing credit features on prepaidcards will diminish the impact of state payday and usury laws and existing military lendingprotections. payday lenders could use the cards, the prepaidcards to avoid rate caps and make payday loans in states where the loans are illegal. finally, under no circumstances should overdraftbe allowed on a prepaid card. it takes away
from the nature of the product, and as wehave seen with other banking products can be an abusive fee for many consumers. we understandthat issuing rules for prepaid cards is a priority for the cfpb. when you do issue rules,we strongly urge you to prohibit credit products and overdraft fees on prepaid cards. finally, we do want to say that the consumercomplaint database has been extremely helpful in identifying problematic practices for anumber of financial products, but we would like to see the cfpb expand the database toinclude other products like payday loans, consumer installment loans, and auto titleloans. zixta q. martinez: thank you, ms. mullany.
james roddick. [no response.] zixta q. martinez: angie robertson. angie robertson: thank you. i am a privateconsumer attorney, and i file cases under the fair debt collection practices act. ihave experienced with many of my clients that there are, as director cordray explained,legalese in the contracts they sign with the credit cards that contain binding arbitrationagreements, and i understand that part of the dodd-frank act required a study on theuse of arbitration. and so i would encourage the members of this panel to set dates andeducate the public on when that study is going
to occur. zixta q. martinez: thank you, ms. robertson. jerome lamet. jerome lamet: i represent 15,000 seniors anddisabled individuals who are drowning in debt. a little history, you will understand whati am going to recommend here. in 1998, i as a chapter 7 bankruptcy trustee, and i sawpeople who could not afford a bankruptcy, who were being abused by the debt collectionindustry. so i started a substitution for bankruptcy, which is debt counsel for seniorsand disabled, which you will find on the internet at debtcounsel.net.
but my comments are as follows. a little bitof history. i spent 27 years with the federal trade commission. i was the assistant regionaldirector here in chicago, and one day in the '70s, i got word from washington that i wasto attend meetings in the four states i was responsible for. what were these meetings?the meetings were with the legislators who said—and the banking industry, who the bankingindustry came to the legislators and said to them, "we want you to exclude from yourusury statutes credit cards, and don't worry about them going too high. competition wouldkeep them low." i went back to my office. i called headquartersand said, "don't believe this. they are going to skyrocket." right now, my average client'sincome is $1,200 a month. their credit cards
are 23 percent interest. they can't pay them.that's the loan shark interest. what i think is the most important thing right now is forthe bureau, for the government to consider returning to the 1970s. in the state of illinois,if i want to lend you money, the most i can charge you is 6 percent, instead of the 23percent that the credit card industry is allowed to pay. so i think we are completely ignoringthe fact that we have got to repeal what happened in the 1970s and return to the usury statutes,which incidentally are as old as the bible. zixta q. martinez: thank you, mr. lamet. ruth elzey. zixta q. martinez: theresa amato.
theresa amato: good afternoon, and thank youfor coming to chicago to hold this hearing. my name is theresa amato, and i am the executivedirector of citizen works and its fair contracts project. and i wanted to comment on director cordray'ssix categories of transparency that still need work and hopefully put a seventh oneon there, and that is to echo the comments of this consumer advocate here. some of theterms that are not directly related to fees or pricing, but do have an impact on consumerseverywhere, such as what are the dispute resolution mechanisms, is there binding forced arbitration,what choice of law applies in those circumstances, what exactly is the contour of a unilateralmodification provision—for example, can
they just change the terms at any time, andhow and to what extent, and why do we have these kinds of provisions in these? in theseagreements, people can't find them easily, and i'll give you just an anecdote. in february of this year, i was trying tofind out the terms of a big bank's dispute resolution mechanism. i went online. i couldn'tfind it. i could find the fees, the apr, all that. i couldn't find the dispute resolutionmechanism. i called the online specialist. i was told that there's an international agreement,and so all mastercard/visa had forced dispute—forced arbitration in their agreements. and theni said, "well, i'd like this particular contract," and i was told i had to go to my local bank.
i went to my local bank. it took them an hourand a half to find out what was in their contract. they didn't actually have a copy of that contractfor that credit card in the bank. they had to call up the food chain of a large bank,and still, they said, "well, we think it's a case-by-case resolution." i said, "i highlydoubt that." and i'm lawyer, and it took me 2 hours to figure out. finally, the organization that offered thecard was able to tell me a week later. zixta q. martinez: thank you, ms. amato. appreciatethat. i am going to try ruth elzey again. zixta q. martinez: how about james ruddick?
zixta q. martinez: i'll take this opportunityto remind folks that our consumer complaint center is taking complaints today. you canreach us at 855-411-2372. you can follow online at consumerfinance.gov, by u.s. mail, or fax. that concludes the field hearing at the haroldwashington public library in beautiful downtown chicago. thank you all for taking the timefrom your busy days to join us here today, and thank you all who joined us by live stream.have a great afternoon.
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