Analysis of Federal Reserve Research on Behavioral Scoring: On “Report to the Congress on Reductions of Consumer Credit Limits Based on Certain Information as to Experience or Transactions of the Consumer”

CRL research report finds that even after the new credit card law and credit card reform, credit card late fees still penalize cardholders while increasing profits for credit card banks and credit card companies. Card issuers find multiple ways to charge customers for late payments that are unrelated to changing borrower behavior or covering losses. Late fees are just another way to raise credit card customer costs.

This brief explains the benefits of credit card reform by showing that cardholders paying more than the credit card minimum payment since the passage of the new credit card law, the Credit CARD Act of 2009, decrease their credit card debt sooner, helps them save more, and improve their credit score.

Credit CARD Act of 2009 – Learn what the law does and does not cover.

New CRL credit card research identifies hidden and deceptive credit card issuer tricks and traps continue, even after the passage of the Credit CARD Act of 2009 and pending Federal reserve rules. The Dodging Reform report explains why American borrowers continue to experience arbitrary, unfair interest rate hikes and fees through examining issuer practices. These practices manipulate interest rates, pad miscellaneous fees, and include deceptive policies on penalty late payment fees. The federal legislation stopped some of the worst abuses in the industry, but a strong consumer-focused regulator like the CFPA would provide common-sense rules on credit cards and could respond to abuses as they surface.

Mandatory arbitration study. CRL's analysis shows consumers lack rights in forced arbitration (binding mandatory arbitration). Almost all credit card contracts with major issuers contain a hidden “forced arbitration” clause. Other loan contracts, such as auto loans, often require forced arbitration as well. Settling legal disputes through arbitration is presented as an alternative that can save time and money, however, in many cases it does neither.

This memorandum provides a comparative analysis of H.R. 627 (the Credit Cardholders’ Bill of Rights Act of 2009), as passed by the House on April 30, 2009, and the amendment in the nature of a substitute prepared by the Senate Banking Committee.

Testimony of Kathleen E. Keest on behalf of the Center for Responsible Lending, Consumer Federation of America, and the National Consumer Law Center before the Subcommittee on Commerce, Trade and Consumer Protection Committee on Energy and Commerce in regards to H.R. 2309: The Consumer Credit and Debt Protection Act.

A quick sampling of credit card issuers’ recent activities in response to the Federal Reserve rule changes that were announced in December 2008 found the top eight issuers--Citigroup, Bank of America, JP Morgan Chase, Capital One, HSBC, Discover, American Express, and Wells Fargo-- are raising interest rates on a larger portion of customers than usual and increasing the number of fees they impose.

While credit card companies compete to offer the lowest "headline" rates in solicitations, they also depend on less obvious tactics to boost their financial returns. Repricing customers based on penalty triggers is a common revenue-boosting strategy. This CRL study shows that penalty repricing leads people to underestimate the interest they are paying and that credit card issuers try to keep it that way. Furthermore, it shows that penalty repricing is increasingly common and there is a growing disparity between the size of the penalty and what consumers expect to pay.