Home Credit card Readability and Deferred Interest Remain Concerns in CFPB Biennial CARD ACT Report | Davis Wright Tremaine LLP

Readability and Deferred Interest Remain Concerns in CFPB Biennial CARD ACT Report | Davis Wright Tremaine LLP


On September 29, 2021, the Consumer Financial Protection Bureau (CFPB) published its fifth biennial report (Report) assessing the state of the consumer credit card market. In addition to addressing the impacts on the credit card market caused by the COVID-19 pandemic, the report updates the general data sets of the 2019 report and seeks to comprehensively assess the credit card market, including various issuer practices and consumer experiences.

Although these biennial reports do not consist of any express regulations or guidance, the content of these reports may be useful in determining areas of concern and implementation priorities for the Office. Below, we highlight some of the important takeaways from the 2021 report.

Credit card agreements

Previous Bureau reports relied on sample documents from the Card Agreement Database due to bandwidth constraints. But technological investments in textual analysis software have allowed the Bureau to take a more holistic view, notably by examining card agreements submitted by issuers with new word processing technologies.

The CFPB notes some important findings associated with its review:

  • Regarding readability, the CFPB found that the Flesch-Kincaid’s “median grade level of 12.4 in 2020 data indicates that less than half of all agreements should be readable by a high school graduate. has steadily increased from a value of 12.0 in 2016.. “
  • The use of arbitration clauses in credit card agreements appears to have increased over the past five years, although large issuers are more likely than smaller banks and credit unions to include arbitration clauses in their agreements.
  • Although the Bureau did not conduct a general analysis of the availability of services in Spanish, analysis of card agreements submitted by issuers revealed that less than a third of the top 20 credit card issuers provide translations into Spanish. easily accessible agreements from their public websites. This despite CFPB’s call that “a wide range of consumers may have difficulty understanding the terms and conditions of credit cards if the agreements are only available in English”.

Access to credit

While the CFPB expresses its appreciation for innovative underwriting approaches that use alternative data to expand access to credit, it also warns that “expanding access to credit… must be done responsibly and responsibly. in a way that consumers can understand ”. The Bureau notes, for example, that “the published findings of a New York Department of Financial Services survey describe common consumer confusion related to the use of these technologies.”

BNPL risks

The report discusses the risks associated with the increasing prevalence of buy now, pay later (BNPL) point-of-sale loans, noting that “[c]ome key differences between BNPL loans and credit cards may pose risks to consumers. “

The risks identified in the report include:

  • Unlike credit card providers, BNPL lenders are not required to examine repayment capacity before granting credit.
  • BNPL loans may not provide the same information as other types of consumer credit.
  • BNPL late fees are not associated with specific regulations such as credit card late fees.
  • BNPL users do not have the same billing error resolution procedures available to credit card users.


The CFPB continues to express concerns about consumers’ understanding of the terms of deferred interest plans. The Bureau notes that consumers who do not repay these plans before they expire often incur significant interest charges.

These costs have increased over the period for which the Bureau has data. The CFPB notes that “[d]Deferred interest promotions continue to pose complex challenges for consumers when deciding how to finance a purchase, as well as when making payments on their balances. The Bureau continues to monitor this area for risks to consumers. “

The report also notes the potential for consumer confusion over applying a grace period to purchase balances when a balance transfer is made. In addition to the upfront fees and interest, consumers may also incur costs associated with losing a grace period on their purchase balances during a balance transfer, which can result in increased customer fees. interest on other purchases. “

Pandemic relief

The CFPB considered whether issuers felt pressured to offer pandemic relief programs because of guidelines and regulations issued by the Bureau. Although issuers have told the Bureau they do not feel pressured, the CFPB notes that it continues to monitor markets for indications that its actions related to COVID-19 could cause undue burden or harm. other unintended negative consequences for consumers.

Emphasizing a theme present throughout the report, the CFPB, in discussing pandemic relief issues, also discusses issues of access to credit for minority and low-income communities, and the report s worried that many consumers were unaware of or could not take advantage of various issuers. relief programs. Statistics provided by the Bureau indicate that non-white, low-income consumers took advantage of these programs in greater numbers than white and high-income consumers, but it is difficult to determine if the use was proportional to the impact. of the pandemic in each community.

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