Credit Cards 2016: Consumer Protection in FocusManley Williams
The past year has seen heightened CFPB interest in the following areas: (i) deferred interest and rewards, (ii) limited English proficiency consumers, and (iii) the recent revisions to the Military Lending Act (MLA). Pursuing simplicity in the design of product features and closely following limited English proficiency issues will help credit issuers mitigate their regulatory risk. Also on the horizon in 2016 is the effective date of the MLA revisions, which were announced in July 2015.
Deferred Interest and Rewards
The Bureau has been focused on the marketing and design of deferred interest products and issued a strong admonition in September 2014 relating to the potential for consumer surprise. However, there has been relatively little enforcement activity in this regard. Instead, enforcement generally has focused on technical violations of law. For example, an August 2015 consent order arose out of point-of-sale disclosures as opposed to the product features themselves. Some deferred interest issues, such as “old fashioned mistakes,” (e.g., “if paid in full” is dropped from the marketing copy) may represent low-hanging fruit for the CFPB and should be addressed to mitigate enforcement risk. The Bureau has also expressed concern about technical issues that may complicate deferred interest for consumers, such as expiration of the promotional period prior to the payment due date.
The Bureau has suggested that consumers base their choice of credit card more on the nature and richness of the rewards than on the interest rate. Accordingly, the Bureau has expressed concern about various aspects of rewards programs, including the expiration of points and complexity surrounding how they are earned and redeemed. While simplicity may reduce regulatory risk, it undoubtedly makes rewards programs more expensive for issuers, and makes it more difficult for consumers to distinguish among them.
Limited English Proficiency
In September 2015, the CFPB issued an enforcement action related to mortgages, which required the respondent to spend $1M on targeted advertising and an outreach campaign in Spanish and English over the five-year term of the order. The CFPB recently created several Spanish language documents: a glossary of basic financial terms as well as two documents titled “Your Money, Your Goals,” and “The Newcomer’s Guide to Managing Money.”
Notwithstanding these efforts, it is worth noting that the CFPB has not translated any of the credit card model forms into Spanish. Determining the appropriate extent of Spanish-language marketing—and fulfillment, if any—is a difficult calculation, and the Bureau has provided no firm guidance. Still, while the industry awaits further developments in 2016, it is advisable to make specific efforts to engage Spanish-speaking communities.
Military Lending Act
The recently revised MLA will also impact the credit card industry in 2016. Under the new regulations, most credit card products will be subject to the MLA, including its 36 percent interest rate limitation. Creditors will need to determine who is a covered borrower, but the revised regulations also provided two safe harbors for a creditor to make such a determination. The revised regulations take effect on October 3, 2016, except for most credit cards, as to which the compliance date is October 3, 2017. Buckley Sandler addressed this new rulemaking in an MLA Spotlight Series (see Part 1, Part 2, Part 3).