CFPB Takes on Credit Card Industry in Court

So what do you think is going to happen here? Well, we went hard against the abuses in the credit card industry and we found that the largest credit card issuers were exploiting A loophole when it came to late fees to the tune of $14 billion a year. We did a rule to make clear that sure, they can charge a late fee. They just either have to justify it by their cost or keep it under $8. And surprise, surprise, the credit card lobby is fighting us hard and we are fighting back. But we are hoping to make sure that there’s a little more sanity to today’s credit card market where consumers are seeing high rates and high fees. So how close do you think you are to getting this done? Well, it takes effect May 14th. We are, they’re battling us in court and we are presenting our case. We think what we have done is exactly in the confines of the law. Congress banned unreasonable fees, and so we have presented the data on why an update makes sense. Conventional wisdom is that you’re going to lose. If you do lose. What’s the strategy then? Well, we have to keep appealing and keep going. And we have a lot more to do when it comes to credit cards. It’s not just these late fees. We also see bait and switches when it comes to cash back and rewards. This Thursday, the Secretary of Transportation, I will be hosting a hearing on airline credit cards. We’re also trying to make it easier for people to quit those higher interest rates, switch to a lower one. We think this could save people 10s of billions of dollars per year. Kind of in that same vein, there’s been a lot of discussion about some of these buy now, pay later services, Klarna after pay, etcetera. I’m still, I’m forgetting a couple. I like a firm here. The expectation in the market is that something’s afoot in Washington. Are you planning any sort of major regulatory actions against those buy now, pay later companies this year? Well, we are trying to make sure that those buy now, pay later companies are not evading the core consumer protections when it comes to disputes returns. We have published a very detailed report about where people are having issues and we’re going to hold them to some similar standards when it comes to treating people fairly. Have you seen evidence of mistreatment? We have lots of consumer complaints and we are investigating some of them and we’re going to take action if we find there’s law breaking. So put together your old hat of the FTC and then this hat. So what confuses me, and this is whether you’re looking at, say, JetBlue and Spirit or you’re looking at Discover and Capital One, some of these tie UPS you make that they make the argument we need that so they can compete with the really big guys like Capital One. Discover need each other because otherwise they can’t compete with say American Express or MasterCard. So it actually makes it harder for the consumer in the long run. Where am I wrong? It’s enticing and intuitive sometimes to think that. But when we look at the record, all of this three is better than four or the the medium sized guys have to merge to go after the big ones. Often fewer choices mean higher prices at the end of the day. We have seen when it comes to the credit card market, it’s dominated by a relatively small set of issuers. Our own analysis shows that the smallest credit card companies are even offering lower rates even when controlling for credit tier. So often the economic evidence suggests that the more players the better. And we should be quite skeptical of the arguments about how you do the Oligopoli. I mean, some of this isn’t even under your purview, right? I mean the reason why we have so few players is, I mean we’ve had banking regulations over the last few years that effectively shut out any sort of new players. Well, I’m not sure that’s true. If you look at the assets and a lot of our mid tier banks, they actually had a very big footprint when it comes to mid sized businesses and even large corporates. I think we should all be very worried that the very largest banks though, there’s a perception you get free unlimited Deposit Insurance from them because they will be bailed out. We’ve got to take out that unfair advantage and let people compete on the merits. What do you think of the economy right now? I think I think you’re seeing a pretty steady. We’re clearly better off than Europe and other parts of the world, but there’s no questions that labor markets strong, but there’s high costs on many key items, especially housing. And the rate environment when it comes to mortgages and credit cards can feel very daunting to people. You have so many people in America who are in a 3 1/2 percent mortgage and cannot move, they feel, because of the mortgage rates they’re facing today. So I do think that for many people the rate environment is having a real effect on how they might view their future prospects. But it is good to see that at the lowest end we have really seen wages increase and outpace inflation now for many consecutive quarters and I think that’s a good thing. How much visibility do you have in that? This goes partly to her question and also partly to my question before about the banking system. There’s been a lot of discussion again, buy now, pay later, a lot of that stuff doesn’t show up on credit reports. You have other pockets of the financial system right now that is, I mean for lack of a better phrase kind of off balance sheet if you will. How much visibility do you have as regulators into sort of the true debt load and servicing costs that consumers have? Yeah. So it is true that the traditional metrics that the Federal Reserve has often used when it comes to consumer debt really need to be modernized. You’re right, it doesn’t include all the buy now, pay later. We have hit over a trillion dollars in credit card debt, but there’s even more on that. So I do think in some ways that picture of household debt is one that it has. It has increased, but of course people’s income has as well. We are seeing in all sorts of consumer borrowing that the increases in rates and the credit card rates are particularly noteworthy. They’ve far outpaced the increases in the Fed funds rate. And so we’re seeing a lot more consumers paying up big in interest and not able to pay down their credit card bill.