Researcher Josh Frank goes through the main findings in our newest crest card report "Predatory Credit Card Lending: Unsafe, Unsound for Consumers and Companies

1. Predatory Credit Cards:
Unsafe, Unsound for Consumers
and Companies
Josh Frank
joshf@responsiblelending.org

2. New Research:
Harm the Customer, Harm the Bank
• Consumer safeguards don’t conflict
with banks’ safety and soundness—
the two go hand-in hand
• What’s bad for consumers is bad for
business
• The Credit CARD Act works

3. CRL Examined:
• 23 pricing and marketing practices common
among top 100 credit card issuers in summer
2009, before the CARD Act took effect
• Credit losses for these companies in 2006
through 2010

4. We Looked at Deceptive Practices…
• Hair triggers for penalty rates
• Imposing penalty rates even when consumers paid
on time
• Manipulating indexes to calculate interest rates to
the disadvantage of card holders
• Assessing late fees with no relation to default risk
• High minimum finance fee: $2 for penny balance

5. And at Better Practices…
• Limits to fees for cash advances
• No high-cost, penalty interest rates
• More time after due date before charging late fee
• Longer grace period before interest charged

6. Some Examples of Wide Variation…

7. How We Measured…
• Scoring system: how often issuer used good
practices, how often unfair and deceptive ones:
Factor analysis
• Doesn’t rely on researcher’s judgment but
tallies similarity of variables, how they group

8. We Found:
Before CARD Act Reforms…
 Issuer with one unfair and deceptive tactic
tended to have many
 Practices linked to lender’s type, size :
--Larger issuer: Worse practices
--Credit union, regional bank: Better practices
 Better Business Bureau complaints linked to
certain practices regardless of issuer type, size

9. Bottom-Line Cause and Effect
 Issuers’ claim that high-cost fees and interest
were risk-management tools: False
 These fees, rates didn’t mitigate risk, they
became the risk---they amplified it.

10. Bottom Line:
 The more often a bank engaged in consumer-
unfriendly practices, the greater its jump in
losses during the downturn
 Going into the recession, an institution’s size,
type or loss rate didn’t predict its change in
credit losses
 Practices best predictor of loss

11. Long-term Impact of Practices
An Example: The Impact of Practices on Losses
12% 11.3%
10%
Credit Losses
8%
6% 5.0%
4% 3.2% 3.2%
2%
0%
Issuer with Safer Practices Issuer with Deceptive Practices
Pre-recession Losses Recession Losses
Note: change in losses is based on regression coefficients using isuers in the 10th and 90th percentile on UDAP score.

12. Happier Customers = Healthier Banks
 Consumer safeguards don’t conflict with banks’
safety, soundness—the two go hand-in-hand
 What’s bad for consumers is bad for business
 More evidence the Credit CARD Act works