1. Predatory Credit Cards:Unsafe, Unsound for Consumersand CompaniesJosh Frank joshf@responsiblelending.org

2. New Research: Harm the Customer, Harm the Bank Consumer safeguards dont conflictwith banks safety and soundnessthe two go hand-in hand Whats bad for consumers is bad forbusiness The Credit CARD Act works 3. CRL Examined: 23 pricing and marketing practices commonamong top 100 credit card issuers in summer2009, before the CARD Act took effect Credit losses for these companies in 2006through 2010 4. We Looked at Deceptive Practices Hair triggers for penalty rates Imposing penalty rates even when consumers paidon time Manipulating indexes to calculate interest rates tothe 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 goodpractices, how often unfair and deceptive ones:Factor analysis Doesnt rely on researchers judgment buttallies similarity of variables, how they group 8. We Found: Before CARD Act Reforms Issuer with one unfair and deceptive tactictended to have many Practices linked to lenders type, size : --Larger issuer: Worse practices --Credit union, regional bank: Better practices Better Business Bureau complaints linked tocertain practices regardless of issuer type, size 9. Bottom-Line Cause and Effect Issuers claim that high-cost fees and interestwere risk-management tools: False These fees, rates didnt mitigate risk, theybecame the risk---they amplified it. 10. Bottom Line: The more often a bank engaged in consumer-unfriendly practices, the greater its jump inlosses during the downturn Going into the recession, an institutions size,type or loss rate didnt predict its change incredit losses Practices best predictor of loss 11. Long-term Impact of PracticesAn Example: The Impact of Practices on Losses12%11.3%10%Credit Losses8%6%5.0%4%3.2%3.2%2%0% Issuer with Safer PracticesIssuer with Deceptive Practices Pre-recession LossesRecession LossesNote: 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 dont conflict with bankssafety, soundnessthe two go hand-in-hand Whats bad for consumers is bad for business More evidence the Credit CARD Act works