Over 170 million Americans have credit cards, making them one of the most commonly-held and widely-used financial products. As a part of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), the Consumer Financial Protection Bureau (CFPB) is required to prepare a report every other year for congress which details their findings regarding the cost of availability of credit and innovations in the credit card marketplace.
Through reviewing the CFPB's fourth biennial report on the state of the credit card market for 2017 and 2018, we’ve identified some key trends that could present new and/or increased compliance risks for credit card issuers:
The Use of Third Parties & Partners
One trend discussed in the CFPB’s report is that many credit card issuers employ third-party agencies to recover debt owed from consumers. According to the report, in 2018 all but one credit card issuers’ third party networks consisted of at least 8 different vendors. Issuers who choose to use third-party agencies assume the risk for how these agencies represent their brand and must ensure their compliance with policies, procedures and regulatory requirements. With the increased use and quantity of third-party vendors for credit card issuers to manage, their risk of noncompliance also increases.
Credit card issuers are also put at an increased risk when their cards are being promoted on third-party comparison sites. Although these sites are neither owned nor operated by issuers, they still take the heat if their products are not being marketed within regulatory guidelines.
Digital Technology and New Innovations
In the credit card market, digital technology is allowing for new innovations to be leveraged to offer consumers more tools to control how they shop for credit cards, how they qualify for different products, how they transact with physical cards or mobile phones and how they pay for associated debts.
While these innovations are greatly beneficial for consumers, they also implicate a broad array of new regulatory provisions that credit card issuers must navigate carefully. This complex regulatory landscape includes (but is not limited to) things like limitations on APR and fee increases, payment allocation rules, ability-to-pay requirements and so much more. With increased regulation comes increased risk, and failure to properly comply can cost these companies big time.
Marketing Through Social Media
In today’s age, the use of social media marketing is becoming increasingly more popular, and credit card companies are jumping on board. Consumers are increasingly encountering credit card marketing across digital platforms, such as the web, emails and social media—according to the CFPB’s report. Credit card companies previously relied heavily on direct mail communications with consumers, but direct mail solicitations are down 22% from 2016 levels. In 2018, 52% of credit card acquisitions in the U.S. occurred online, and are expected to continue to grow in coming years.
Credit card advertising on social media sites such as Twitter, Facebook and Instagram is becoming more prominent, as is the use of paid ads and social media influencers. While these can be effective marketing tools, ensuring compliance is just as critical on these platforms as it is anywhere else. Social media has become an area of increased scrutiny by the regulators in recent years—the FTC has even released Endorsement Guides which outlines the regulatory guidelines for influencer marketing. Social media can help companies potentially reach billions of consumers, but also dramatically increases the risk for potential compliance violations.
While these recent trends are overall positive for both consumers and credit card issuers, companies must navigate the regulatory landscape carefully and be aware of the new areas of risk they could be exposed to.
Learn how PerformLine can help mitigate risk and ensure brand safety by speaking to one of our experts today.