Top lobbying groups for the financial industry are pushing back against the Consumer Financial Protection Bureau as the regulator ratchets up pressure on credit products that can lure in customers with zero-interest terms but later surprise them with high charges.

Earlier this month, on the same day CFPB Director Richard Cordray announced he had sent letters to top credit card companies urging them to adopt more transparent practices, leading trade groups including the American Bankers Association and Consumer Bankers Association defended so-called “deferred interest” products.

Commonly offered on store-brand credit cards, deferred interest terms allow consumers to make big-ticket purchases and avoid paying interest so long as the balance is paid off before the promotional period ends. If a balance remains after that period—typically six months to a year—consumers can be hit with high interest charges that are retroactive to the date of the initial purchase on the card.

In a speech to a CFPB advisory panel, Cordray said deferred interest terms can confuse consumers and surprise them with high retroactive interest charges. As an alternative, Cordray urged credit card companies and their partner retailers to adopt “zero-percent-interest” terms in which consumers only begin to accrue interest on whatever balance remains following the promotional period.

“The terms are easier for consumers to understand and the costs are more transparent. So we are encouraging others to consider adopting this approach,” Cordray said.

Cordray's speech coincided with the June 8 deadline to respond to the CFPB's most recent request for information on the credit card market. The agency's request—conducted as part of a review required every two years by the Credit CARD Act of 2009—noted that the CFPB had previously found that deferred interest products, “while popular, can pose risks to consumers.”

The American Bankers Association and Consumer Bankers Association disputed the notion that deferred interest products confuse consumers. For instance, the Consumer Bankers Association and Financial Services Roundtable said “high 'payoff rates'” show that consumers understand how deferred interest products work. The groups argued that no additional regulatory action is warranted for deferred interest products.

Dong Hong, vice president and senior counsel for the Consumer Bankers Association, said in an interview that Cordray was using his “bully pulpit” to nudge retailers and credit card companies away from deferred interest products.

“We have not seen any indication that they see rulemaking as necessary. Instead, what we see is the CFPB using letters to particular companies asking them to move away from this product toward another. I just think it's a peculiar way to make a policy decision when they have other tools at the ready,” Hong said.

In its comment letter, the American Bankers Association said “deferred interest programs are popular and beneficial” to consumers and retailers. The group added that “there is little evidence that users of deferred interest products do not understand how those products function.”

“Further, we believe that users of deferred interest plans understand and value those products. As the bureau found in its 2015 Credit Card Review, even among subprime consumers, most consumers who choose the deferred interest plan repay within the deferred interest period and benefit from the free loan,” wrote Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association's Center for Regulatory Compliance.

The CFPB has long kept a wary eye on deferred interest products. In December 2013, the agency reached a settlement with GE Capital Retail Bank requiring the company and its subsidiary, CareCredit, to pay up to $34.1 million in refunds to victims of allegedly deceptive credit card enrollment practices. The CFPB alleged that, at dentists' and doctors' offices across the country, consumers were signed up for CareCredit cards they believed were interest-free but actually accrued interest that would kick in if the balance was not fully paid by the end of a promotional period.

“Deferred-interest products can be risky for consumers in the best of circumstances and today's action ensures that CareCredit will no longer be able to profit from consumer confusion,” Cordray said at the time.

In his speech last week, Cordray applauded Wal-Mart for deciding to no longer offer deferred interest on its store credit card. The retailer will instead offer what he called a “more straightforward zero-percent-interest promotional program.”

That same day, the National Consumer Law Center urged the CFPB to ban deferred interest products. “At a minimum,” the group wrote, “the bureau should use its bully pulpit to urge other retailers and card issuers to follow Wal-Mart's example in dropping deferred interest.”

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Top lobbying groups for the financial industry are pushing back against the Consumer Financial Protection Bureau as the regulator ratchets up pressure on credit products that can lure in customers with zero-interest terms but later surprise them with high charges.

Earlier this month, on the same day CFPB Director Richard Cordray announced he had sent letters to top credit card companies urging them to adopt more transparent practices, leading trade groups including the American Bankers Association and Consumer Bankers Association defended so-called “deferred interest” products.

Commonly offered on store-brand credit cards, deferred interest terms allow consumers to make big-ticket purchases and avoid paying interest so long as the balance is paid off before the promotional period ends. If a balance remains after that period—typically six months to a year—consumers can be hit with high interest charges that are retroactive to the date of the initial purchase on the card.

In a speech to a CFPB advisory panel, Cordray said deferred interest terms can confuse consumers and surprise them with high retroactive interest charges. As an alternative, Cordray urged credit card companies and their partner retailers to adopt “zero-percent-interest” terms in which consumers only begin to accrue interest on whatever balance remains following the promotional period.

“The terms are easier for consumers to understand and the costs are more transparent. So we are encouraging others to consider adopting this approach,” Cordray said.

Cordray's speech coincided with the June 8 deadline to respond to the CFPB's most recent request for information on the credit card market. The agency's request—conducted as part of a review required every two years by the Credit CARD Act of 2009—noted that the CFPB had previously found that deferred interest products, “while popular, can pose risks to consumers.”

The American Bankers Association and Consumer Bankers Association disputed the notion that deferred interest products confuse consumers. For instance, the Consumer Bankers Association and Financial Services Roundtable said “high 'payoff rates'” show that consumers understand how deferred interest products work. The groups argued that no additional regulatory action is warranted for deferred interest products.

Dong Hong, vice president and senior counsel for the Consumer Bankers Association, said in an interview that Cordray was using his “bully pulpit” to nudge retailers and credit card companies away from deferred interest products.

“We have not seen any indication that they see rulemaking as necessary. Instead, what we see is the CFPB using letters to particular companies asking them to move away from this product toward another. I just think it's a peculiar way to make a policy decision when they have other tools at the ready,” Hong said.

In its comment letter, the American Bankers Association said “deferred interest programs are popular and beneficial” to consumers and retailers. The group added that “there is little evidence that users of deferred interest products do not understand how those products function.”

“Further, we believe that users of deferred interest plans understand and value those products. As the bureau found in its 2015 Credit Card Review, even among subprime consumers, most consumers who choose the deferred interest plan repay within the deferred interest period and benefit from the free loan,” wrote Nessa Feddis, senior vice president and deputy chief counsel for consumer protection and payments at the American Bankers Association's Center for Regulatory Compliance.

The CFPB has long kept a wary eye on deferred interest products. In December 2013, the agency reached a settlement with GE Capital Retail Bank requiring the company and its subsidiary, CareCredit, to pay up to $34.1 million in refunds to victims of allegedly deceptive credit card enrollment practices. The CFPB alleged that, at dentists' and doctors' offices across the country, consumers were signed up for CareCredit cards they believed were interest-free but actually accrued interest that would kick in if the balance was not fully paid by the end of a promotional period.

“Deferred-interest products can be risky for consumers in the best of circumstances and today's action ensures that CareCredit will no longer be able to profit from consumer confusion,” Cordray said at the time.

In his speech last week, Cordray applauded Wal-Mart for deciding to no longer offer deferred interest on its store credit card. The retailer will instead offer what he called a “more straightforward zero-percent-interest promotional program.”

That same day, the National Consumer Law Center urged the CFPB to ban deferred interest products. “At a minimum,” the group wrote, “the bureau should use its bully pulpit to urge other retailers and card issuers to follow Wal-Mart's example in dropping deferred interest.”