Facts Matter: In CARD Act Report Press Release, CFPB Seemingly Ignores Basic Risk-Based Pricing Principles
WASHINGTON, D.C. – CBA releases final ‘Facts Matter’ blog post in series to counter misinformation by CFPB press office.
This is the final installment of the Consumer Bankers Association’s (CBA) “Facts Matter” series, which highlights the stark contrast between what the Consumer Financial Protection Bureau (CFPB) says in its press releases and what its research actually conveys.
Prior blog posts in this series have focused on data from the CFPB’s October Consumer Credit Card Market Report (CARD Act Report), explaining in more plain language terms what the numbers actually mean. In doing so:
- We found, contrary to the CFPB’s statements about a “lack of competition,” the CFPB’s actual data on marketing spend, balance transfers, and innovation shows the credit card market is vibrantly competitive.
- We rebutted the CFPB’s misleading assertions about growth in late fees by showing late fees have generally remained steady in proportion to card balances over the years – and that annual fees have actually shifted away from low-credit consumers to high-credit consumers.
- We showed the CFPB’s data on “persistent debt” were almost exactly opposite from the CFPB’s statements to the press. In fact, consumers are making greater progress paying down their credit card debt than in recent years (and banks are at least partially responsible for this healthy shift in consumer behavior).
This final feature necessarily takes a less data-driven approach and is instead more qualitative because the particular CFPB assertion we’re addressing here is uniquely puzzling.
Below, we have reprinted the primary and secondary headlines from the CFPB’s press release for the CARD Act Report.
The subheading of the CFPB’s press release, outlined in orange, says: “Consumers with revolving debts on average pay far more in interest and fees than get back in rewards.”
It’s difficult to understand why the CFPB believes it is newsworthy to clarify that it costs money to borrow.
Consider two consumers: Alex and Bryce.
Alex charges $500 on her credit card and pays back her balance, in full, before the end of the month. Alex pays only $500 that month.
Bryce charges $500 on her credit card. But at the end of the month, Bryce only pays a minimum payment of $35. Bryce then has a remaining balance and will incur additional interest on what she owes. For consumers like Bryce, paying only a small fraction of her total charge is an important value, because it provides liquidity for emergency expenditures or smooths her finances across paychecks. But it also costs Bryce money to borrow that $500. That’s due to the bank’s cost of providing the money; the risk of non-repayment; and a range of other factors.
Simply put, it costs money to borrow money. After ten years of studying the credit card market and publishing five prior CARD Act Reports, it is perplexing that the CFPB deemed this finding headline-worthy.
We have struggled with ways to address the CFPB’s headline here without seeming patronizing.
While the CFPB is not a safety and soundness regulator (unlike the Federal Reserve, FDIC, OCC), we believe the nation’s primary regulator of consumer financial products and services surely understands that if consumers could net positive by borrowing money, the safety and soundness of each and every financial institution would be jeopardized. If you do this at scale (who wouldn’t love to borrow money for free!) financial stability for the country as a whole would be at risk.
Accordingly, we are left with several questions:
We have questions about how the CFPB views banks, as businesses.
We have questions about the seriousness with the CFPB appreciates the complexity of risk management within individual institutions and across the financial system.
And finally, we also have a range of operational and governance questions about the extent to which the CFPB’s statements to the public are vetted by its experts, lawyers, or otherwise reviewed.
Nevertheless, we conclude this blog series where we began: Facts matter when policymakers write regulations.
And, regardless of what the CFPB’s press releases and speeches may represent, banks and credit card issuers continue to provide services broadly and equitably, as evidenced by the data – the facts – in the CARD Act Report.
Read the previous three Facts Matter blog posts in this series:
