COURTESY: Consumer Action Publication-September, 2019
Consumers have more than doubled their spending on credit cards since 2015, according to the CFPB’s latest report on the state of the credit card market. Credit card balances continue to grow, but not as rapidly as purchases, according to the 2019 report, which covers 2017-2018 credit card activity.
The average amount of credit card debt for consumers with lower credit scores is rising faster than for those with higher scores, and the number of consumers making late payments has increased, as have delinquency and charge-off rates (balances that the companies write off due to non-payment).
The total cost of credit has risen in the last two years, mostly due to small increases in the prime rate set by the Federal Reserve. Changes in the prime rate cause variable credit card interest rates to move up or down, depending on whether the Fed hikes or lowers the prime rate. Annual fees have been increasing as well, with an average fee of $80 in 2018. (However, there are plenty of cards without annual fees.)
Cardholders have increased their use of rewards cards, which are costlier for card issuers to administer, and these costs are typically passed on to cardholders. The costs of balance transfers and cash advances have remained the same.
The report reveals that card issuers have lowered the number of debt collection calls they make each day, and, compared to the previous two years, have agreed to settle more outstanding balances using for-profit debt settlement companies. The CFPB report notes, however, that card issuers say they offer the same settlements to consumers who approach them directly as they do to for-profit settlement companies, so it’s not necessary to get involved with a third party.
The report also highlights industry trends: More consumers are applying for credit on their mobile devices (particularly consumers with lower credit scores). Card companies are relying more on computer-based artificial intelligence and machine learning programs to manage risk and expand access to credit for those without traditional credit scores. The Bureau warns, however, that card companies must closely monitor the use of these new technologies to avoid unintended consumer consequences and discrimination.
The CFPB’s biannual credit card reports are required under the CARD (Credit Card Accountability Responsibility and Disclosure) Act of 2009. The CARD Act, which Consumer Action worked to help pass, was responsible for reducing and eliminating certain credit card fees and for banning retroactive interest rates (dramatic rate hikes applied to previous purchases). The law has saved consumers an estimated $12 billion a year, which translates into well over $100 billion in total savings over the decade since its passage.