CFPB official urges consumers to consider small card issuers

CFPB official urges consumers to consider small card issuers

Consumers should proceed with caution when choosing their next credit card, according to a recent blog post of the Consumer Financial Protection Bureau (CFPB).

In the post, Julie Margetta Morganassociate director of research, monitoring and the CFPB And regulations, reminds readers that the 10 largest credit card companies alone handle 83% of unpaid credit card debt and that many of the largest card issuers offer cards with the worst terms and rates highest interest. And the highest late fees.

“In comparison,” she wrote, “smaller credit card companies tend to offer much better deals on interest rates: Across all credit tiers, smaller companies offer rates between eight and 10 percentage points lower than those of large companies. »

While she urges U.S. consumers to at least consider looking into cards issued by “small banks and credit unions,” there are even more types of alternative cards to consider, and data from PYMNTS Intelligence indicates that Co-branded cards and store cards could also be a solution. possible alternative for consumers.

PYMNTS Intelligence recently publishedThe Role of Strategic Partnerships in Consumer Credit Cards», a collaboration with Momentumoffers an in-depth analysis of co-branded cards and store cards – and why consumers are attracted to them.

The differences between co-branded cards and their in-store counterparts are significant. Co-branded credit cards typically feature a company’s logo and brand name as well as those of a card network. In most cases, they function like general-purpose credit cards and can be used anywhere on the compatible card network, even for purchases unrelated to the brand on the front of the card. Store cards, on the other hand, feature the merchant’s brand exclusively and can only be used with that merchant.

Regardless of the type of card in question, the report, based on surveys of more than 3,000 U.S. consumers, reveals that three main factors determine a consumer’s decision to use a card: loyalty programs and of rewards, cost considerations. And trust – although these factors weigh differently depending on the consumer and card type.

For those using co-branded cards, loyalty and rewards benefits top the list. Thirty-eight percent of respondents with a co-branded credit card and 34% with a store card cite rewards programs as their primary motivation for getting the card. Conversely, only 18% of general purpose credit card holders prioritize loyalty and rewards.

Cost considerations, meanwhile, play a less important role for co-branded cardholders than for general-purpose card users. Only 19% of consumers with co-branded credit cards and 20% of those with store cards say low annual fees or low interest rates are a top reason for choosing that card; 27% of general purpose card holders said the same.

Trust comes in third across the board, with between 14% and 16% of those with co-branded or in-store cards citing trust in the affiliated merchant or issuing bank as the primary reason. Notably, trust in the brand displayed on the front of the card tends to be more important than trust in the bank that In fact issued the co-branded and store cards.

Additional data indicates that while loyalty programs and cost are important to cardholders regardless of card type, the relative importance consumers place on these two factors varies widely. When asked what factors would make them more likely to prefer a co-branded card over a general-purpose card, 46% of respondents with a co-branded card said loyalty programs were better, while only 26% of those without a co-branded card answered the same. Twenty-six percent of those with co-branded cards cited loyalty or rewards as the most important feature, compared to just 7.2% without co-branded cards. Lower interest rates are the biggest factor for those without co-branded cards, although the totals are closer.

CFPB officials would likely welcome the news that lower interest rates are also on consumers’ minds when choosing a card. Data from PYMNTS Intelligence shows that 39% of those with co-branded cards reported lower interest rates. was a determining factor in their decision to use a co-branded card rather than a general purpose card.

Likewise, consumer watchdogs may be happy to learn that 55% of consumers with an in-store card and 52% of co-branded consumers card holders pay the entire balance due each month before interest can accrue, each of which is greater than the corresponding 49% of the general purpose shares card holders who do the same.