Consumer Protection Agency Takes Aim at Credit Card Industry
As the Consumer Financial Protection Bureau (CFPB) prepares for a potential change in leadership, Director Rohit Chopra is making the most of his remaining time, taking bold action against the credit card industry.
A Growing Problem: Price Gouging
In a recent interview, Chopra expressed concern over the industry’s growing price-gouging problem, citing a significant shift in credit card interest rates. Despite the Federal Reserve’s interest rate hikes, credit card interest rates have risen even higher, resulting in fatter margins for big credit card issuers. This has led to consumers being hit with high prices, even when considering the cost of funds and consumer credit profiles.
The Role of Rewards Cards
Chopra attributes the growing margins to the increasing popularity of rewards cards, which have become a major player in the market. These cards are no longer limited to higher-income, prime borrowers, but are now being marketed to a broader audience. As a result, consumers are prioritizing rewards over interest rates, leading to a market environment where interest rates are less salient.
New Credit Card Comparison Tool
The CFPB has launched a new credit card comparison tool, designed to provide an alternative to commercial sites that often rely on kickbacks or affiliate marketing. While the tool has its limitations, Chopra hopes it will encourage third-party comparison sites to use the data, making it easier for consumers to make informed decisions.
The Need for Unbiased Data
Chopra believes that rigged comparison sites are steering consumers into cards that are profitable for the website, rather than the consumer. By making unbiased data available, the CFPB aims to provide a trusted source for consumers to compare credit cards.
Retail Credit Cards Under Scrutiny
The CFPB has also released a report highlighting the problems associated with retail credit cards, which are often linked to high-pressure sales tactics and bad debt. Chopra suggests that regulating these cards could help prevent coercion on frontline workers to push credit cards on customers.
Interest Rate Caps: A Growing Consensus
Chopra believes that there is a growing consensus around the need for interest rate caps, citing research that shows the largest credit card issuers charge substantially higher rates than smaller issuers. He hopes that the incoming administration will consider implementing such caps, which could lead to more bipartisan discussion.
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