CFPB Takes Aim at Credit Card Rewards Programs
The Consumer Financial Protection Bureau (CFPB) announced today new action that it says aims to protect consumers from illegal credit card practices and help them save money on interest and fees.
In a circular to other law enforcement agencies, the CFPB warned that some credit card companies operating rewards programs may be breaking the law, including by illegally devaluing rewards points and airline miles. The CFPB also launched a new tool, Explore Credit Cards, to help consumers find the best credit card rates across both rewards cards and traditional cards.
A CFPB study showed the 25 largest credit card issuers charged interest rates 8 to 10 percentage points higher than smaller banks and credit unions. That difference can cost the average cardholder $400 to $500 per year. It gets worse with retail credit cards. 90% of retail cards reported a maximum APR above 30%, compared to only 38% of non-retail general purpose cards, the CFPB said.
“Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they’ve earned,” said CFPB Director Rohit Chopra. “When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them. The CFPB is taking aim at bait-and-switch tactics and promoting more competition in credit card markets to protect consumers and give people more choice.”
The circular released by the CFPB addresses practices in credit card rewards programs, which companies increasingly use to encourage consumers to apply for and use specific cards. Credit card issuers often promise cash, points, and miles sign-up bonuses to consumers, as well as rewards for certain types of spending. The CFPB says that these rewards can be difficult to redeem or are sometimes devalued by policy changes by partners.
The circular warns that companies may violate federal law when they:
- Devalue earned rewards: Consumers make decisions on whether to open or use a credit card based on the value of card benefits and rewards conveyed by a company’s advertising and other communications. If the company later deflates the value of a customer’s accrued awards, this may be an unfair or deceptive practice resembling a bait-and-switch scheme.
- Hide the conditions for earning or keeping rewards: Fine print disclaimers or vague terms buried in a contract may unlawfully conflict with prominent promotional language advertising the rewards consumers can earn. Companies may also illegally rely on fine print to cancel valuable rewards that consumers have already earned. If consumers’ receipt of rewards is revoked, canceled, or prevented based on buried or vague conditions, that may be an unfair or deceptive act or practice.
- Fail to deliver promised benefits: Companies operating rewards programs are responsible for ensuring consumers can redeem the rewards they have earned, including coordinating with merchant partners and vendors. If system failures result in consumers losing points when attempting to redeem, this may be considered an unfair or deceptive practice.
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