LenderLaw Watch continues its coverage of the impact COVID-19 has had and will have on various financial services sectors, this week focusing on COVID-19’s impact on credit card issuers. Although the newly enacted CARES Act (H.R. 748, 116th Cong. (2020)), signed by President Trump into law on March 27, 2020, has instituted various relief efforts in order to stimulate the economy, it does not address or provide relief for credit card debt. Nonetheless, the credit card industry has not been spared from COVID-19’s impact. There have been guidelines advanced by state and federal regulators, and changes made by many major credit card issuers, to soften the economic blow to consumers. As the situation and regulations evolve, credit card providers should be aware of the changing landscape.
On March 15, 2020, before the passage of the CARES Act, and as COVID-19 spread globally at an unprecedented rate, the Federal Reserve made an emergency decision to cut its benchmark interest rate to nearly zero percent in an effort to bolster the economy. This is something which the Federal Reserve had not done since 2008. While this decision does not impact fixed-rate credit cards, it does impact the interest which can be charged on variable rate credit cards. Although not a significant impact in the short term, credit card issuers should be wary of the effects of the Federal Reserve’s rate cut in the long run and should monitor the situation closely. They should also be especially wary of cutting back on any special interest rate reductions or rebates as a result of extended periods of time with a zero percent benchmark interest rate. Although there has not been any class action litigation filed against credit card companies regarding the rescission of interest-based rebates or reductions, rescissions of these consumer benefits could result in putative class action litigation, as exemplified by a recent putative class action against a lender for its suspension of a monthly interest rebate program.
On the state level, some states have placed new limits on debt collection practices, including the filing of lawsuits and inclusive of credit card debt. For example, the Massachusetts Attorney General on March 27, 2020, issued an emergency regulation (940 C.M.R. 35.00) that provides that it is unfair or deceptive for any creditor or debt collector to threaten or act upon: a new collection lawsuit; garnishment, seizure, or attachment of the debtor’s wages or property; a visit to the consumer’s household or place of employment; or communicate in person with the consumer. The regulation is in place for 90 days, or whenever Massachusetts’ state of emergency expires, whichever comes first.
Notably, and perhaps more importantly, both federal and state regulators have encouraged financial institutions to work with consumers to help mitigate the financial impact of COVID-19 by providing guidelines for increases in extensions of credit, or the offering of accommodations or workarounds to limit, furlough or waive credit card fees or payments. The Office of the Comptroller has encouraged consumer credit providers to, among other actions, waive certain fees and increase credit limits for some borrowers. California’s Commissioner of Business Oversight has issued guidance encouraging financial institutions to waive credit card late payment fees, increase credit card limits for creditworthy borrowers and offer payment accommodations. Illinois’ Department of Financial and Professional Regulation issued a statement release “strongly urg[ing] banks and credit unions to respond to borrowers affected by the current economic environment” by offering payment accommodations and increases in credit card limits. Further, the New York State Department of Financial Services issued emergency regulations which would provide a waiver of credit card late fees charged by licensed or regulated entities to consumers who can show financial hardship as a result of COVID-19.
Although not mandatory, these guidelines for financial institutions, including for credit card issuers, have caused over a dozen major credit card issuers to provide some sort of workaround relief to consumers affected by COVID-19. Given that the encouragement is not mandatory, there are no set guidelines for what sort of relief should be offered. Relief given to credit card consumers by these credit card issuers ranges from the ability to skip monthly payments without accruing additional interest charges on balances, to reduced monthly payment or interest rates, to increases in credit limits, to the ability to only apply for late fee waivers. Credit card issuers who have not yet made changes to their policies surrounding payments, interest and fee waivers should keep a close watch on current guidelines and any future proposed regulations. If COVID-19 continues to disrupt the economy within the coming months, there may be actions by state and federal regulators to make their guidelines mandatory, and potentially related unfair or deceptive acts lawsuits that follow.