ABA Banking Journal: Don’t Reward Misleading Data

The CFPB continues to mislead policymakers and the public about credit card rewards programs.

In recent months, the Consumer Financial Protection Bureau has intensified its focus on the credit card market and rewards programs. The bureau’s latest volley is a report titled “Credit Card Rewards,” which is based on consumer complaints submitted to the bureau and whose release coincided with a joint CFPB and Department of Transportation public hearing on airline and credit card rewards programs.

In its report, the bureau argues that consumer complaints reveal “concerning patterns” regarding market practices, warns issuers to “ensure their conduct . . . conforms with the law” and promises to “take necessary action on these issues where appropriate.” While these statements might grab headlines, they are not supported by the data. Instead, the report is another example of biased research based on a flawed methodology and designed to support a predetermined and politically motivated conclusion. Similar to previous CFPB analyses that ABA has rebutted on interest rates spreads and industry competitiveness, the bureau’s conclusions on card rewards do not stand up to scrutiny.

Americans like their credit cards — and they like their rewards

Let’s start with the fact that Americans like their rewards. According to a March survey conducted by Morning Consult on behalf of the American Bankers Association, more than nine in 10 consumers (93 percent) said that they value the convenience of using their credit cards. Eight in 10 have at least one credit card that offers rewards, and 88 percent say they value the rewards programs on their credit cards. Furthermore, by a more than two-to-one margin (63 percent versus 24 percent), consumers say they would be disappointed to lose the rewards program on their credit cards due to government regulatory changes.

Complaints about rewards are exceedingly rare

The evidence is also clear that consumer complaints are exceedingly rare. The bureau reports that it received more than 1,200 consumer complaints related to credit card rewards in 2023, but as illustrated below, it fails to note that these complaints comprise a very small fraction of all complaints it receives — and an even smaller fraction of the credit card market.

In 2023, consumers submitted roughly 1.3 million complaints to CFPB, of which only 4.2 percent (54,416) were about credit cards. Of these, only 2.2 percent (1,215) pertain to rewards. Overall, complaints about credit card rewards comprise 0.09% of all complaints submitted. Relative to the 143 million U.S. adults who own a rewards credit card, the probability that a rewards cardholder selected at random submitted a complaint about rewards in 2023 is 0.0008 percent — hardly evidence of a malfunctioning marketplace.
Still, even though complaints about rewards credit cards are rare, credit card issuers take these complaints seriously, as evidenced by the industry’s 99.2 percent timely response rate to complaints in the database. In fact, more than one-third of credit card complaints submitted to the bureau resulted in some form of monetary or non-monetary relief from the card issuer, according to the bureau’s complaints database.

Opaque methods, scant evidence, and key omissions

The bureau’s research and accompanying rhetoric on credit card rewards programs in recent months appear to be designed to justify increased legal or regulatory scrutiny of industry practices. Given the importance of the credit card industry to the U.S. economy, not to mention the popularity and ubiquity of credit card rewards programs with U.S. consumers, it is critical that the CFPB employ rigorous and transparent methodologies to ensure its findings are credible.
Unfortunately, the bureau’s report includes no methodological detail beyond a single sentence: “We analyzed several hundred consumer complaints relating to the administration of credit card rewards programs and identified four recurring themes that resulted in consumers not receiving the rewards they were promised.” The report does not indicate how many complaints were reviewed, how they were selected, what — if any — efforts the agency undertook to assess their veracity, or what share of the reviewed complaints fell into each “recurring theme.” As a result, the reliability of the bureau’s analysis is impossible to verify.
Further, with the limited detail offered in the report, there is no way to determine whether the 39 specific complaints referenced in the report are representative of the overall complaints database or cherry-picked to support a pre-determined narrative. For example, in one section titled “Bait-and-Switch Offers,” the CFPB report states that “consumers described applying for a card based on a more rewarding offer but later receiving an inferior promotion.” However, to support this assertion, the report cites just two complaints, both of which received a timely response from the credit card issuer and were “closed with explanation.”
The bureau also omits key details that provide important context for the complaints it cites. For example:

• More than one-third of the complaints cited in the report resulted in the issuers offering monetary or non-monetary compensation to the cardholder. The fact that issuers voluntarily resolved these complaints in the cardholder’s favor is a relevant detail included in the complaints database but nonetheless omitted from the report.
• The CFPB also appears to intentionally disguise the timing of the referenced complaints. On the first page of the report, the authors reference the roughly 1,200 rewards complaints submitted in 2023, and in the next paragraph they note that they analyzed “several hundred complaints relating to . . . credit card rewards programs.” Although it would be reasonable to conclude from these statements that the bureau focused its analysis on complaints filed last year, this is actually not the case: of the 39 complaints cited as evidence for the bureau’s conclusions, only 11 were submitted last year. In some cases, the complaints referenced to as evidence are quite dated: for example, the complaints cited by the CFPB on the use of “hidden or vague conditions” to deny promotional offers were submitted in late 2016 or early 2017.
• Finally, by taking submitted complaints at face value and drawing wide-ranging conclusions from them, the bureau appears to disregard its own guidance on how to use (and not use) the database. Specifically, the database includes a disclaimer that the bureau “does not adopt their views [of the complainant] or verify that their experiences are accurate or unbiased” (emphasis added) and advises the public to “consider what conclusions may be fairly drawn from reading consumers descriptions of their experiences.”

These are important caveats that are not mentioned in the report.

Conclusion

In closing, the bureau’s research methods are not transparent, and the sweeping conclusions it draws regarding “unfair, deceptive and abusive practices” in the credit card market based on the unverified complaints of an extremely small number of cardholders — many of which were addressed voluntarily by the issuers — is meritless. The latest report is yet another example of the bureau working backward from a predetermined conclusion that credit card rewards programs are bad for consumers and need to be reformed, despite widespread evidence that these programs are highly popular and deliver tremendous value to tens of millions of cardholders from all walks of life. The credit card industry and the millions of customers we serve deserve better.
The facts are clear: Americans like their credit cards. They like their rewards. They would be disappointed to lose their rewards programs. The complaints about rewards are exceedingly rare. When they do occur, banks take them seriously and resolve them quickly.

Thomas Rosenkoetter is executive director of ABA’s Card Policy Council.

ABA Banking Journal Podcast: Understanding how monetary policy shapes SOFR

On this episode of the ABA Banking Journal Podcast, ABA economist Jeff Huther discusses recent dynamics with the Secured Overnight Financing Rate, the “world’s most important number.” Huther delves into topics in his his new ABA DataBank essay, exploring how quantitative tightening has pushed SOFR toward the upper end of the Federal Open Market Committee’s rate target range, the effects of monetary policy mechanisms like the Overnight Reverse Repo Facility, and how banks and other SOFR users can manage volatility that may emerge in the rate.

Listen to podcast episode

CISA NEWS: US Supreme Court Ruling Will Likely Cause Cyber Regulation Chaos

The ruling could weaken almost all US federal cybersecurity regulations, including SEC incident reporting, FCC data breach reporting, and CISA cyber incident reporting rules.

July 2, 2024

The US Supreme Court has issued a decision that could upend all federal cybersecurity regulations, moving ultimate regulatory approval to the courts and away from regulatory agencies. A host of likely lawsuits could gut the Biden administration’s spate of cyber incident reporting requirements and other recent cyber regulatory actions.

In a stunning reversal of nearly 40 years of regulatory law, in Loper Bright Enterprises v. Raimondo, the Court voted six to three last week to gut a legal precedent known as the Chevron deference. Decided in a 1984 Supreme Court case, Chevron instructed lower courts to defer to expert regulatory agencies in cases requiring interpretation of congressional intent.

In Loper, the Supreme Court ruled that courts — not regulatory agencies — are the ultimate arbiters of what governing congressional law says, casting into doubt thousands of federal regulations affecting virtually all aspects of society, from environmental safety to financial fraud.

Chief Justice John Roberts wrote for the majority in Loper: “Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”

Roberts also said that courts may not defer to an agency’s interpretation of the law simply because a statute enacted by Congress is ambiguous. The Court’s decision does not overturn previous court cases that relied on Chevron although challengers are free to relitigate these cases.

The decision could weaken all federal cybersecurity regulations

While the Court’s decision has the potential to weaken or substantially alter all federal agency cybersecurity requirements ever adopted, a series of cyber regulatory initiatives implemented over the past four years could become the particular focus of legal challenges. Parties who previously objected to these initiatives but were possibly reluctant to fight due to the Chevron deference will likely be encouraged to challenge these regulations.

Although all existing regulations are still in effect, the upshot for CISOs is almost certainly some degree of uncertainty as the legal challenges get underway. A host of conflicting decisions across the various judicial circuits in the US could lead to confusion in compliance programs until the smoke clears.

CISOs should expect some court cases to water down or eliminate many existing cybersecurity regulatory requirements.

Read full article.

ABA Banking Journal: Private-Public Partnership Releases New Bank Resources for Cloud Computing Adoption

2024 SDBA IRA School

September 17-19, 2024 | Ramkota Hotel, Sioux Falls

IRAs are one of the most complicated areas of bank personnel responsibility. Working with them is a process and must begin with a strong foundation. This IRA school can provide such a foundation through an extensive curriculum, covering both new and current IRA material, along with previous topics covered at the school that will be expanded on. This program is the quickest, easiest, and most comprehensive coverage of IRAs and HSAs.

Hotel block will release on August 19, 2024.

Information and Registration 

2024 SBA Minnesota Small Business Lenders Conference

Thursday, September 12, 2024 | 8:30 a.m. - 4:15 p.m. CDT |  Bloomington, MN

The SBA Minnesota Lenders Conference is now the Minnesota Small Business Lenders Conference! The SBA loan programs should be a key part of every lender’s strategy. They are a proven tool for attracting new customers with competitive loans for business expansion and working capital needs. Don’t miss this full day of premier education sessions designed specifically to help you optimize your organization’s participation in SBA’s lending programs and build your network of SBA program and industry experts.

Book your room by September 13.

Information & Registration

University of South Dakota "Meet the Firms Networking Event"

September 11 | 2:00-4:00pm CDT

"This event is a great opportunity to engage with our Beacom School of Business Accounting students and share information about your company. We will use a speed networking format as in previous years.  You will have a round table and small groups of students will visit with you in 10 minute intervals for approximately an hour and a half.  The last 30 minutes of the event will be an open time for students to visit with you more in-depth." 

Learn more HERE!

Question of the Week

Q: Under Regulation D, the requirement of charging for charging transactions on non-transaction accounts was suspended (indefinitely); if a bank still charges fees for excessive transactions, is that bank still required to monitor them?

A: While a bank is no longer required to limit or monitor these transactions under Regulation D, monitoring and enforcement should still be consistent from a UDAAP/UDAP perspective. The FRB’s FAQ suggests that charging fees for excessive transactions likely would not pose an issue under the current suspension rules: “Regulation D does not require or prohibit depository institutions from charging their customers fees for transfers and withdrawals in violation of the six-transfer limit. Accordingly, the deletion of the six-transfer limit does not have a direct impact on the policies or account agreements of depository institutions that charge such fees to their customers." FRB - Savings Deposits Frequently Asked Questions However, it may be worth considering that if the bank is not monitoring these transactions, then this could possibly lead to these fees not being charged in a consistent manner to all similarly situated accountholders, which could expose the bank to potential UDAAP/UDAP concerns.

Learn how to put compliance management solutions from Compliance Alliance to work for your bank, by contacting (888) 353-3933 or [email protected] and ask for our Membership Team.

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