ICYMI: At Hearing, Warren Highlights CFPB Efforts to Cut Down on Credit Card Fees and Lower Prices for Consumers
Washington, D.C. – At a hearing of the Senate Committee on Banking, Housing, and Urban Affairs, Senator Elizabeth Warren (D-Mass.) called out how big credit card issuers are exploiting loopholes in the law to gouge consumers and rake in profits.
Adam Rust, Director of Financial Services at the Consumer Federation of America pointed out that while interest rates at smaller financial institutions like credit unions are lower, consumers are often guided by misleading price comparison tools online to cards that have higher interest rates, issued by big banks.
Santiago Sueiro, Senior Policy Analyst at UnidosUS spoke about how lower income, working class people of color are hit most by higher interest rates and fees.
Senator Warren called out Republican lawmakers’ support for the credit card industry and their attempts to overturn the CFPB’s credit card late fee rule that caps fees for consumers. Despite Republican lawmakers claiming that "the vast majority of Americans support these fees,” Mr. Suiero explained that a review of the 57,000 comments submitted to the CFPB for the credit card late fee rule reveals that consumers are tired of junk fees.
Transcript: Consumer Protection: Examining Fees in Financial Services and Rental Housing
Senate Committee on Banking, Housing, and Urban Affairs,
May 9, 2024
Senator Elizabeth Warren: In 2009, Congress passed the CARD Act to crack down on banks and other credit card issuers that were abusing consumers with excessive late fees and bait-and-switch terms – like those low initial rates that, once somebody signed on the dotted line, really jumped up and jumped up high.
The card act slashed average late fees by one third, to $23 in 2010. But by 2022 –12 years later – by exploiting loopholes in the law, that number was back up to $32. Enough to make the biggest credit card companies and extra $14.5 billion in profits that year. Meanwhile, average credit card APRs have nearly doubled over the last decade from 13% in 2013 to 23% in 2023. That is the highest on record.
As credit card companies have grown their profits through interest and fees, they have also become more concentrated with the biggest issuers gobbling up the smaller ones. In 2022, the 10 biggest credit card companies in the country accounted for 83% of all credit card loans.
Mr. Rust, you have studied the credit card market for years now. Can you say something about how the smaller credit card issuers stack up versus the biggest issuers in terms of how much they're charging consumers? The big guys versus the small guys that are still left?
Adam Rust, Director of Financial Services, Consumer Federation of America: Thank you for that question. Actually, I was really hoping to have the opportunity to say that CFA and the CFPB have pointed out that interest rates at smaller institutions, small credit unions, are lower. This has to do, I believe, with the fact that credit card market is somewhat broken because the way people are comparison-shopping – when they say, “I would like to get a credit card,” it doesn’t take them to the small bank, it takes them through a comparison-shopping site, a lead generator, that’s earning large amounts of fees to direct them just to the cards that have the highest rates.
We are seeing margin-on-margin issues where the amount of margins growing over time – it’s never been higher. And credit card issuers that are larger are charging interest rates that are 8% to 10% points higher now.
Senator Warren: Wow. So, the big guys with the highest paid CEOs are actually charging consumers a whole lot more than the little guys in the credit card market. And it’s the big guys who are hitting particularly hard on customers' pockets.
Mr. Sueiro, you are an expert on predatory lending practices. Who is paying the bulk of the interest and fees that are driving credit card companies’ profits?
Santiago Sueiro, Senior Policy Analyst, UnidosUS: There are a number of ways to look at it. The CFPB has found consumers with deep prime – subprime credit scores are paying a disproportionately high amount of fees – we know that that population are generally lower income, working class people of color. We know from our surveys, we know from other consumer surveys – this has been reflected over time, repeatedly, that low income people disproportionately pay these – Latinos, Black consumers also disproportionately paying these –
Senator Warren: So people are paying more and you know who is paying more – people who are struggling the most.
Now, the CFPB is taking action to rein in price gouging in the credit card market, including by capping most late fees at $8 – obviously, very good news for American families.
Of course, we know who is not happy about that – big credit card issuers and their Republican friends in Congress. Last month, Republicans introduced a bill to overturn the CFPB’s credit card late fee rule so that the credit card industry can continue squeezing every last dime out of these consumers. One House Republican even said, "the vast majority of Americans support these fees."
Mr. Rust, I have to ask, do you know anyone – who is actually a consumer – who loves junk fees?
Mr. Rust: I've never heard someone say, “I paid an overdraft fee and I'm really glad that worked out.”
Senator Warren: Yeah, that really worked out well for me. I've never seen the bumper sticker "I heart junk fees,” right?
How about you, Mr. Sueiro, anyone you know who is excited about being gouged by a multibillion dollar bank?
Mr. Sueiro: No. Obviously not. And I want to add two things. One is, the CFPB received 57,000 comments from this. The vast majority – or a large number – were from consumers that were saying quite the opposite, that they were fed up with these fees, they did not want to pay them, they were very unpopular.
The opposite is also true. If you ask consumers, how would you feel about a product that doesn't have such high late fees or low fees? They look at those products favorably and actually have more goodwill toward financial institutions if they were to be offered those products.
Senator Warren: I am glad the CFPB is taking up the fight on behalf of consumers and willing to stand up to the big banks. Thank you, Mr. Chairman.
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