CFPB Takes Action on Bait-and-Switch Credit Card Rewards Tactics
CFPB warns companies against illegal devaluation of rewards and other unlawful practices, highlights issues with retail credit cards, and launches a tool to help find cards with lower rates
The Consumer Financial Protection Bureau (“CFPB”) has announced major actions to protect consumers from illegal credit card practices and help people 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 published new research finding that retail credit cards—which typically offer store-specific rewards and loyalty programs—charge significantly higher interest rates than traditional cards.
The CFPB further launched a new tool, Explore Credit Cards, to help consumers find the best credit card rates across both rewards cards and traditional cards. This first-of-its-kind tool enables consumers to compare more than 500 credit cards using unbiased, comprehensive data.
CFPB Moves to Stop Credit Card Rewards Program Schemes
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. Since 2019, more than 90 percent of general-purpose credit card spending occurred on rewards cards. In today’s marketplace, credit card issuers often promise cash, points, and miles sign-up bonuses to consumers, as well as rewards for certain types of spending. Consumers have reported to the CFPB that these rewards can be difficult to redeem or are sometimes devalued by policy changes by partners.
The CFPB 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.
Source: ConsumerFinance.gov
