Facts Matter: CBA Uses CFPB Data to Set Record Straight on CARD Act Report

In passing the sweeping reforms of the credit card market under the 2009 Credit Card Accountability Responsibility and Disclosure (“CARD”) Act, Congress required that the Consumer Financial Protection Bureau (CFPB) publish a review of the state of the credit card market every two years.¹ This year’s Consumer Credit Card Market Report (“CARD Act Report”) published late last month, was accompanied by a CFPB press release full of headlines distressingly removed from and even contradicted by the Report itself.

Facts matter when policymakers write regulations. Since the beginning of the Biden Administration, the CFPB has pushed forward major, industry-reshaping policy changes around a policy thesis that there’s a lack of competition for consumer financial products and services.² As the CARD Act Report’s data show, this is not an accurate portrayal of the market.

To highlight these numerous contradictions and inconsistencies, the Consumer Bankers Association (CBA) is producing a four-part series to contrast the CFPB’s CARD Act Report press release against reality, primarily using the data from the CFPB’s own research.

The CARD Act Report clearly shows a competitive credit card market.

In its press release, the CFPB (incorrectly) asserts: “Major credit card companies’ profits are now higher than pre-pandemic levels, potentially signaling a lack of competition in a market consistently dominated by the top 10 credit card companies.”

This CFPB’s claim misrepresents the Bureaus’ own data in several important ways:

The CARD Act Report clearly shows that the top 10 credit card companies compete with smaller banks for market share.

The CARD Act Report flatly states that market shares of the top 10 credit card issuers declined by four percent from 2016 to 2022, contrary to the stark language of the CFPB’s press release about “a market consistently dominated by the top 10 credit card companies,”³ According to the CARD Act Report, market share for the next 20 issuers grew by the same percentage in that time frame.

The CARD Act Report shows that credit card issuers compete vigorously and innovate creatively to win new customers.

The CARD Act Report highlights that, “[i]n 2022, credit card marketing efforts were at their highest since at least 2015.”⁴ The October CARD Act Report cuts its analysis off at 2015. But, if you look to data from the 2013 CARD Act Report, it’s clear that credit card marketing efforts are actually at their highest levels since the CARD Act was enacted in 2009.⁵

• As the October Card Act Report explains, “Monthly mail volume reached 610.6 million items in September 2022 after the recent trough of 61.7 million in July 2020.” That means that mail marketing for credit cards has exploded to ten times its volume in the last two years. Said another way, in one month alone, credit card issuers mailed more than two applications for credit cards for every single adult in America.

The CARD Act Report also explains how credit card companies develop new technologies to better reach new consumers. For instance, the Report explains that “[t]hird-party comparison (TPC) sites such as Credit Karma, NerdWallet, and others drive a lower share of credit applications than before the pandemic but remain a significant channel for digital traffic.”⁶

• Even at these recently-reduced levels, a fifth of credit card applications come in via these digital third-party sites, meaning that consumers are shown a range of different credit cards for which they are likely qualified before they choose. This is particularly helpful for subprime and credit invisible consumers, as evidenced by their higher usage of these third-party comparison sites for their applications.

The CARD Act Report describes recent advances by card issuers related to soft credit inquiries that increase competition by allowing consumers to compare multiple credit card offers, without impacting their credit score. As the CARD Act Report explains, soft underwriting can materially benefit consumers’ financial well-being by encouraging borrowers to compare cards they are likely to be qualified for without fear of their credit score being harmed by the multiple hard inquiries.⁷

• This is just one example of the many innovations card issuers are developing to compete for consumer relationships. As the CARD Act Report notes, card issuers are introducing a wide range of new technologies and product offerings so they can offer more sophisticated underwriting and new form factors like digital wallets and different payment structures that compete with non-banks and other forms of credit and payment tools, like buy-now-pay-later products and “credit builder” loans.⁸

The CARD Act Report shows that even after they’ve “won” a consumer, credit card issuers must compete voraciously to keep their consumers’ business.

For all of the data in the 2023 CARD Act Report’s 175 pages and nearly 400 footnotes, the October report has a curious omission – this year, the CFPB doesn’t state how many credit cards the average cardholder has.

• In the 2021 CARD Act Report, released under Acting Director David Uejio, the CFPB noted that the average cardholder carried 3.8 credit cards in 2020.⁹ We assume that this number has gotten larger, because the CFPB provides the quarterly number of open credit accounts in the October Report (See Figure 1, below).¹⁰ The data shows a steady climb in open credit accounts that looks to at least match, if not outpace, population growth in that same time period.¹¹

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FIGURE 1 | Quarterly Number of Open Credit Card Accounts (CFPB)

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Even after a credit card company has won a consumer’s business as a cardholder, it still must compete against two or three credit cards each and every time the consumer uses a credit card to make a purchase. As the October CARD Act Report explains:

“Since consumers often carry more than one credit card, credit card issuers compete to acquire and retain “top of wallet” status as consumers’ primary method of payment. Issuers must refresh product offerings and provide new benefits regularly to ensure cardholders reach for their product first at checkout or keep their card as the default option in a mobile wallet. Issuers depend on their card being consumers’ top-of-wallet card to maintain interchange revenue, grow interest-incurring balances, and gain marketable insights on consumer spending.”

Of all the data points in the October Report, one particular number shows how fierce the competition amongst card issues can be: the CFPB finds that there were $53 billion in balance transfers in 2022.¹²As the CFPB explains, “[b]alance transfer offers enable consumers to potentially reduce the cost of credit card debt.” That’s because “consumers are typically offered a lower interest rate on the transferred balance (often zero percent) but are also typically required to pay an upfront fee assessed as a share of the transferred balance.”

• The CFPB explains how the balance transfer competition and math benefits consumers using a hypothetical: “For example, a cardholder who transfers a $5,000 balance from a card where they were revolving the balance at 25 percent APR might pay a fee of 2.8 percent of the balance ($140) upfront, but due to the zero percent  balance transfer APR they would save nearly $1,250 per year in interest if they otherwise would have paid only the minimum payment due each month on their prior card during the new card’s promotional period.”

$53 billion dollars means a lot of credit card loans are moving from one credit card issuer to another. To put that number in context, we’ve created a graph that shows the total credit card balances for the top ten credit card issuers in 2022 and layered that over the $53 billion mark. (See Figure 2, below.) The amount of balance transfers that moved from one issuer to another is greater than the totalholdings of each but the top seven credit card issuers.

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FIGURE 2 | Credit Card Balances & Total Balance Transfers

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Facts matter because they help us understand what policy choices are appropriate.

Since the beginning of the Biden Administration, the CFPB has pushed forward major, industry-reshaping policy changes around a policy thesis that there’s a lack of competition for consumer financial products and services.¹³

• For instance, when announcing the CFPB’s proposed rule to lower the Federal Reserve Board’s safe harbor for credit card late fees, CFPB Director Chopra argued that late fees and, by extension credit cards, “aren’t subject to the normal forces of competition.”¹⁴ According to the Director, competition had been “undermined,” so the CFPB needed to intervene to ensure the credit card market is fair and competitive.”¹⁵
• Likewise, in justifying the CFPB’s sweeping open banking regulations, relying on its Dodd Frank Act Section 1033 authorities, Director Chopra paints a picture of ushering in a new “competitive market [which] would also lead to unbundling where companies compete on individual products, rather than relying on captive customers or cross-selling scams.”

As described above, the CFPB’s own research shows that the CFPB is simply wrong in how it justifies its rulemakings.¹⁶

Even a cursory handful of internet searches quickly reveals that the CFPB’s framing of competition across the financial services industry just isn’t accurate. The CFPB says that we need open banking so that consumers can have more access to fintech. But according to a leading data aggregator, "fintech has reached mass adoption," with 88 percent of U.S. consumers using fintechs.¹⁷

• As the data aggregator points out, that is a higher adoption rate than video streaming subscriptions and social media. Similarly, competition in the checking account industry is fierce. According to Cornerstone Research, 14 percent of consumers had opened new checking accounts by the summer of this year.¹⁸ That rate grows higher each year (15 percent for the full year of 2022; 12 percent in 2021; 10 percent in 2020). Further, nearly half (47 percent) of new accounts in 2023 were digital banks or fintechs.

The CFPB’s Late Fee and Open Banking proposals are enormously destabilizing for card issuers and will generate new costs for consumers. Just with open banking alone, the CFPB is requiring banks of all sizes to create application programming interfaces for third parties with no real limits and with no ability to recoup costs — while still holding liability for any fraudulent and erroneous transactions that result from stolen credentials. But more importantly, responsible consumers will ultimately be left with higher costs.

• As an example, the CFPB estimates that its Late Fee rulemaking will benefit a minority of frequent late payers, but could cause APRs to rise for all cardholders as much as two percent.¹⁹ That means that cardholders that pay on time – which includes 50 percent of subprime cardholders that are working to build their credit histories – will have a harder time making ends meet, presumably because of the CFPB’s false narrative about a lack of competition in the credit card market.²⁰

Likewise, the CFPB’s open banking proposal leaves an important scenario unaddressed, where consumers could be left on the hook for fraudulent or erroneous transactions caused when their delegated third parties exceed their authority.

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CBA, on behalf of our members, will continue to work with the CFPB to find the right answers, with the shared goal of improving consumers’ financial well-being over the long term. As we embark on that process, to paraphrase the late Senator Daniel Patrick Moynihan (D-N.Y.), it’s incredibly important that the CFPB understands that it can have its own opinion about policy, but it can’t have its own facts.

This piece is a part of a four-part series on the CFPB’s CARD Act Report. You can read the full report HERE.

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1. Section 502 of the Credit Card Accountability Responsibility and Disclosure Act of 2009 assigned these responsibilities to the Federal Reserve Board, but responsibilities for the Report were subsequently transferred to the CFPB.
2. See, e.g., https://www.consumerfinance.gov/about-us/blog/promoting-competition-in-our-financial-markets/.
3. 2023 Consumer Credit Card Market Report at 18. https://files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf.
4. 2023 Consumer Credit Card Market Report at 74.
5. 2013 Consumer Credit Card Market Report at 40.
6. 2023 Consumer Credit Card Market Report at 76.
7. 2023 Consumer Credit Card Market Report at 162-63.
8. 2023 Consumer Credit Card Market Report Section 7.
9. 2021 Consumer Credit Card Market Report at 27.  https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2021.pdf.
10. 2023 Consumer Credit Card Market at 87.
11. 2023 Consumer Credit Card Market Report at 87. (“Cardholding is more common among consumers with higher scores, but a record number of more general purpose cards are held by those with lower scores.”)
12. 2023 Consumer Credit Card Market Report at 115-118. (“Depending on the duration of the promotion and the interest rate differential, as well as the consumer’s repayment behavior, savings from balance transfers can be significantly higher than the upfront cost of the initial balance transfer fee.”)
13. See, e.g., https://www.consumerfinance.gov/about-us/blog/promoting-competition-in-our-financial-markets/.
14. https://www.consumerfinance.gov/about-us/newsroom/director-chopras-remarks-on-press-call-for-credit-card-late-fees-nprm/.
15. Id. and https://www.consumerfinance.gov/about-us/newsroom/cfpb-proposes-rule-to-rein-in-excessive-credit-card-late-fees/.
16. Perhaps the most consternating aspect of this discussion is that traditional measures used by antitrust regulators and the private sector for generations, such as the Herfindahl–Hirschman index, clearly and objectively show how competitive the credit card market is. That may explain why the CFPB feels the need to reinvent measures of competition – but even by those measures, they do not make their case.
17. https://plaid.com/blog/report-the-fintech-effect-2021/.
18. Shevlin, R. (2023, July 5). How fintechs are dominating new checking account openings. Forbes. Retrieved from https://www.forbes.com/sites/ronshevlin/2023/07/05/the-checking-account-war-is-over-and-the-fintechs-have-won/?sh=525502183a31
19. CFPB Credit Card Penalty Fees Proposed Rule at 114 [88 FR 18906]; https://www.consumerfinance.gov/rules-policy/rules-under-development/credit-card-penalty-fees-regulation-z/.
20. CFPB 2022 Credit Card Late Fees Report https://www.consumerfinance.gov/data-research/research-reports/credit-card-late-fees/.