Opinion: CFPB or No CFPB, Robust Competition Should Keep Credit Card Issuers Honest

My plea to U.S. consumers: Please don’t panic. If the Trump administration is successful in shutting down the Consumer Financial Protection Bureau (CFPB) for good, people will still be able to open new accounts, pay for things with their cards, earn rewards, and turn to consumer protection laws should they need them.

The Bureau’s closure will not cause credit accounts to automatically become more expensive or the terms to get more confusing. Nor will credit cards become less available or the benefits not as attractive.

Whether you agree or disagree with the department’s dismantling, when it comes to how the CFPB’s suspension will affect cardholders and issuers, I predict that the impact will be negligible if not nil.

Although the Bureau was developed to enforce federal consumer financial laws and protect consumers in the financial marketplace against abuses, tight and enforceable laws remain.

Just a few of my favorite consumer protection laws that pertain to credit cards were signed into federal law in the 1970s. They include the Equal Credit Opportunity Act, which requires lenders to treat all applicants fairly, the Fair Credit Billing Act, which protects consumers against unfair credit billing practices, and the Fair Debt Collection Practices Act, which prohibits debt collectors from using abusive, deceptive, or unfair practices.

When consumers believe card issuers or creditors have violated the law, they should take action. Part of the reason the CFPB was set up was to investigate infractions, but they’re not the only game in town. The Federal Trade Commission and the state’s attorney general’s office will also investigate banking-related issues.

In the meantime, consumers will continue to open credit cards and hold power over the way they charge goods and services. They can pay in installments or in full.

And as always, lenders will want to remain competitive, so they will develop and market enticing products. Credit card issuers are aware that consumers have a tremendous number of choices with countless credit cards available. The better a person’s credit rating, the more opportunities they have.

What everyone needs, though, Is education.

Before I started my own business as a personal finance reporter, I worked for 10 years at Consumer Credit Counseling Service of San Francisco, sitting with countless people in financial distress and guiding them on how they can get out of their credit card debt and develop budgets based on their financial realities and goals.

I also spent a lot of time teaching people about credit cards, from the various ways companies turn a profit to the many strategies people can use to get more out of their plastic than it costs them.

Along the way, I discovered that the majority of people who came to see me had only a vague idea about how credit products work and were hazy on all the repercussions for misusing them. This lack of know-how was prevalent across demographics.

As an example of a lack of financial literacy, many consumers don’t understand how long it can take to pay down credit card debt when they only make minimum monthly payments.

For example, I distinctly remember reviewing one woman’s credit card statement. A professional software engineer, she arrived angry. Despite paying her bill consistently and in the requested amount, her debt was stagnant. Surely the credit card company was doing something wrong. Could she sue? To whom should she complain?

I pointed out that this card’s interest rate was in the upper 20s, and calculated the finance charges that she was being charged. Then I explained how the minimum monthly payments she had been sending were barely denting her balance. Most of her money was going to interest not the principal, and even then she was going backwards because she continued to charge with the card.

It was a grueling session, but eventually she looked up, and said, “so that’s how they getcha.” Yes. That’s how they getcha. Then we launched into what she needed to do instead — putting the power back in her hands.

One-on-one teaching only reaches the individual, though, so my colleagues and I were thrilled when the Credit Card Accountability Responsibility and Disclosure (CARD) Act was passed into law in 2009. Among its many provisions: requiring credit card issuers to clearly print on credit card statements the fees for that billing period. Additionally, the credit issuer had to disclose the total interest cost that would accrue if the cardholder only made the minimum payments on that balance each month until the debt was repaid.

Such transparency is extremely helpful for cardholders. With that information clearly spelled out on statements, people can make better borrowing and repaying decisions. I don’t see disclosures going away.

The CFPB was launched in 2011, so it is a relative newcomer. Does it do good? Sure, and I hope it is reworked so it can come back more refined. Some things may eventually change if it remains gone, too. Credit card late, overdraft, and junk fees may increase. And since the CFPB has rules requiring lenders to provide credit access to high-risk borrowers, some consumers may have fewer card options until they bring their credit scores up.

Now more than ever consumers need to handle their accounts responsibly and offset potential problems by learning more about credit and contacting the right agencies for help. If they don’t like the policies put in place by the credit card issuer, they can — and should — take their business elsewhere.

As for credit issuers, it will be ever more important to ensure that their business practices are attractive and positive for the consumer. Most do take those steps and I don’t see that changing, CFPB or no CFPB.