Rohit Chopra may not have much time left as director of the Consumer Financial Protection Bureau as Donald Trump prepares to assume the presidency. But the regulator has made the most of his likely final months on the job, recently telling Congress that he didn’t think there was any reason for the agency to behave like a “dead fish.”
This week, the CFPB took a series of small actions involving the credit card industry. Among the actions: It warned companies that the devaluation of customers’ points could be illegal and released a study criticize retail credit cards for offering particularly high interest rates. It also debuted a new one credit card comparison tool using data the agency collects that could theoretically provide an alternative to commercial sites that it claims often rely on kickbacks or affiliate marketing.
In an interview on Thursday, Chopra told Yahoo Finance that the credit card industry has a growing price gouging problem and shared some of his thoughts on regulations that might be needed to curb it — although it may be a while before another Democrat gets a chance to to carry them out. Below is a transcript of the interview, which has been edited for length and clarity.
Weissmann: I want to take a step back. How would you generally describe the way the credit card industry currently treats consumers? Is the EU’s entire business model fundamentally problematic or do you think there are just a number of individual issues that need better regulation?
ChopraI think the most notable shift in recent years is what many would consider price gouging. Very importantly, we have seen a shift in credit card interest rate margins. In other words, when you look at the cost of funds for major credit card issuers, as well as other factors such as consumer credit profiles, we see much larger margins. And in some ways, credit cards have been more expensive than at any time in recent history.
So to make it even finer: even if you think about it [the Fed’s] interest rate increases, those credit card interest rates went way beyond that. The net result is that as consumers walked down the aisles wondering why things like diapers were so expensive if they made those purchases with a credit card, they were once again confronted with high prices.
Read more: How do credit card companies make money?
Weissmann: What’s your theory on why those margins have gotten so much thicker? What allows them to engage in “price gouging,” as you put it?
Chopra: There are a whole bunch of reasons and we looked at a lot of them. Some of them range from real practices out of the weeds, like how they changed their credit reporting to make it unclear to their competitors who their most profitable customers are, to things that are much more out in the open. And one of those things is the important role that rewards cards have now played in the market.
You’re now seeing that rewards cards aren’t just being marketed to prime, higher-income borrowers. You see it permeating the market. Consumers really look at choosing a credit card based on the rewards. That has created a market environment where the interest rate itself is less noticeable, and the interest rates people pay often wipe out far more than the value of the rewards.
We’ve also looked at this from other angles, such as how so many non-financial companies have effectively become credit card companies. There are department stores that survive largely because they sell credit cards.
Weissmann: You guys released this credit card comparison tool. When I went online and tried it out, the first thing I noticed was that it doesn’t really compare rewards, which is what most credit card buyers, like you said, are interested in. What does make it easy is comparing the April. I’m curious, was that intentional? Was that a way of signaling that people should care more about interest rates? Or was it a limitation of the data?
Chopra: So here’s what I’d say about the tool. As you can see, it’s not that fancy. But what we’re actually trying to do is make the data public. Based on what we’ve done in recent years, we’re commissioning companies to request data and then give people the ability to visualize it, with the goal that third-party comparison sites will also use this data. And it will be updated periodically.
But you’re right: the way consumers look at it now is very much reward-based, and I’m really concerned that the structure of credit cards today creates a financial incentive for credit card companies to push consumers into a treadmill of debt. . Because when you sign up for a credit card, it’s usually a time when you think you can pay off your balance month to month, and that means the interest is a lot less noticeable. You then focus on the sign-up bonus for the rewards, which is very natural. And what we’re finding is that when people start paying interest on credit cards, we don’t see credit card issuers telling consumers that they can switch to a card with a lower rate.
The fundamental problem is that credit card companies make a profit when people get into debt.
Weissmann: There are, of course, many of these comparison tools online. Why do you feel like we need another one?
Chopra: We’ve done work and issued policies on counterfeit comparison sites. We think comparison tools are very important, but if the results are manipulated, consumers will ultimately be sent to cards that could simply be profitable for the comparison website. And manipulated results are something we’re paying more and more attention to.
Let me give you an example: you have a lot of airline points websites that are not operated by airlines, but are operated by third parties who are actually making huge amounts of money through commissions and kickbacks from credit card companies. So part of it was again trying to make the data available so that there is an unbiased data set and that there is at least a place for people to go where the data is not skewed.
Do we expect a lot of attention for this? No, but we’ve found that it’s really important to make the data public so it can be used and power other types of tools.
Weissmann: You released a report arguing that retailers are essentially responsible for a disproportionate share of the sector’s problems and bad debts. Do you think retail credit cards need more specific regulation?
Chopra: One of the places we’ve been hearing a lot about is retail workers. I’ve also heard this from flight attendants and others that an increasing portion of their compensation now depends on whether or not they can push credit cards on customers. When that comes with high-pressure tactics and quotas, it can often be a recipe for what we saw at places like Wells Fargo, where even fake accounts were created. So trying to make sure that there isn’t too much pressure or coercion on frontline workers to push these cards, I think could be something that we continue to do.
Weissmann: Donald Trump talked during his campaign about imposing a cap on credit card interest rates. Do you think that is an appropriate step?
Chopra: I do think there is a growing consensus on the need for interest rate ceilings. We’ve done research to show that the rates charged by the largest and most dominant credit card issuers are significantly higher than those charged by credit card issuers that may not be popular brands. We also looked at credit unions that are subject to a federal rate cap on their credit cards and many of them have very robust businesses. So I think this is something that the new administration is clearly interested in and I think this will be a place where there will be more bipartisan discussions.
Disclosure: Yahoo Finance makes money from advertisers and partners, including credit card issuers, through its personal finance affiliate marketing activities. Read about our standards and editorial guidelines.
Read more: What credit card users need to know about the Fed’s December interest rate cut
Jordan Weissmann is a senior reporter at Yahoo Finance.
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