By Pete Rizzo (@pete_rizzo_)
The Consumer Financial Protection Bureau (CFPB) released a new report on October 1 that revealed that average late fees on credit card accounts have fallen $6 since the CARD Act’s implementation, and that consumers have saved $2.5 billion in 2012 as a result of the law.
Enacted in February of 2010, the Credit Card Accountability, Responsibility and Disclosure Act (CARD) Act was designed to do more than simply reduce fees consumers paid to major financial institutions. The CFPB determined the CARD Act has had an impact on the availability of credit.
“Across all of these metrics, credit appears to be less available today than it was in 2007,” the CFPB report stated.
The CFPB assessed changes to the total amount of credit line on card accounts, the total number of accounts and the number of new account originations, as well as smaller measures such as mail solicitation volume to make this determination. However, the report authors indicated that this is due to the 2008-2009 financial crisis rather than any provision of the law.
“Nothing in the evidence reviewed suggests that the CARD Act was responsible for the reduction in credit access – which largely preceded the Act’s enactment – or that the CARD Act has retarded the pace of the recovery,” the authors said.
Still, the report did reveal new data for many of the credit-related metrics it assessed in pursuit of its answer. How did the CFPB find new account originations, credit card approval rates and small business credit lines have been affected since the passage of the act?
We go behind the CFPB’s 2013 “CARD Act Report” in this PYMNTS.com Data Point.
New Account Originations
The CFPB analyzed new account originations as one metric for evaluating credit availability. Using publicly available research, the CFPB showed that new account origination volumes for general purpose credit cards have declined since 2008.
The report noted that the implementation of the CARD Act has “coincided with a rebound in originations.” In 2009, new account origination hit a recession low of 43.2 percent. As of 2012, this figure has risen to 69.8 percent, slightly below the 70.6 percent observed in 2007.
The CFPB suggested this decline was due to the low levels of originations for subprime borrowers – which currently stand at 70.3 percent of 2007 levels, and a decline in accounts held by consumers under the age of 21 that was consistent with the legislation.
Total Credit Line
For this study, the CFPB analyzed both consumer and small business credit card lines. Because small business credit lines were unaffected by the legislation, the report alleged they acted as a control, allowing to determine if outside factors, not the law itself, were the cause in the overall decline in credit availability.
“The fact that consumer and small business lines closely tracked each other from 2008 to 2012 suggests that the Act … cannot explain the decline in consumer card line,” the report stated.
The CFPB indicated the main drivers of reductions in total credit lines on consumer cards were account closures, credit line decreases and charge-offs. From July 2008 to December 2012, it indicated there was a $1.7 trillion reduction in total credit lines, the report found.
Credit Card Solicitations
The report found that the CARD Act did have a measurable effect on credit card solicitation volume following its enactment. Specifically, the implementation of the law coincided with a “modest rebound” that saw mailings continue to rise thereafter.
In July 2012, however, solicitations began trending down to reach 37 percent of 2007’s levels. The report indicated that this may reflect the increasing importance of online and social media communication.
For more facts and insights into how the CARD Act affected consumer credit, including its impact on agreements, disclosures and issuer practices, view a full copy of CFPB report here.