WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) introduced main actions at this time to guard shoppers from unlawful bank card practices and assist folks get monetary savings on curiosity and charges. In a round to different legislation enforcement companies, the CFPB warned that some bank card corporations working rewards applications could also be breaking the legislation, together with by illegally devaluing rewards factors and airline miles. The CFPB additionally printed new analysis discovering that retail bank cards—which usually provide store-specific rewards and loyalty applications—cost considerably greater rates of interest than conventional playing cards. The CFPB additional launched a brand new instrument, Explore Credit Cards, to assist shoppers discover the very best bank card charges throughout each rewards playing cards and conventional playing cards. This first-of-its-kind instrument allows shoppers to check greater than 500 bank cards utilizing unbiased, complete knowledge.
“Large bank card issuers too usually play a shell sport to lure folks into high-cost playing cards, boosting their very own earnings whereas denying shoppers the rewards they’ve earned,” mentioned CFPB Director Rohit Chopra. “When bank card issuers promise cashback bonuses or free round-trip airfares, they need to really ship them. The CFPB is taking goal at bait-and-switch techniques and selling extra competitors in bank card markets to guard shoppers and provides folks extra selection.”
The CFPB’s actions arrive in the course of the busy end-of-year buying and journey season; as an example, retail card originations are usually seasonal, peaking in November and December as retail gross sales volumes and promotions are excessive in the course of the holidays.
CFPB Moves to Stop Credit Card Rewards Program Schemes
The round launched by the CFPB addresses practices in bank card rewards applications, which corporations more and more use to encourage shoppers to use for and use particular playing cards. Since 2019, greater than 90 p.c of general-purpose bank card spending occurred on rewards playing cards. In at this time’s market, bank card issuers usually promise money, factors, and miles sign-up bonuses to shoppers, in addition to rewards for sure kinds of spending. Consumers have reported to the CFPB that these rewards will be troublesome to redeem or are generally devalued by coverage modifications by companions.
In May 2024, the CFPB and the U.S. Department of Transportation hosted a public listening to about challenges shoppers are experiencing and the dearth of competitors in airline and bank card rewards applications. In conjunction with the listening to, the CFPB issued a report discovering shoppers encounter quite a few issues with bank card rewards applications.
Today’s round warns that corporations might violate federal legislation after they:
- Devalue earned rewards: Consumers make selections on whether or not to open or use a bank card primarily based on the worth of card advantages and rewards conveyed by an organization’s promoting and different communications. If the corporate later deflates the worth of a buyer’s accrued awards, this can be an unfair or misleading follow resembling a bait-and-switch scheme.
- Hide the circumstances for incomes or holding rewards: Fine print disclaimers or imprecise phrases buried in a contract might unlawfully battle with outstanding promotional language promoting the rewards shoppers can earn. Companies may additionally illegally depend on wonderful print to cancel helpful rewards that buyers have already earned. If shoppers’ receipt of rewards is revoked, canceled, or prevented primarily based on buried or imprecise circumstances, that could be an unfair or misleading act or follow.
- Fail to ship promised advantages: Companies working rewards applications are answerable for guaranteeing shoppers can redeem the rewards they’ve earned, together with coordinating with service provider companions and distributors. If system failures lead to shoppers shedding factors when making an attempt to redeem, this can be thought of an unfair or misleading follow.
The CFPB has taken motion in opposition to issuers comparable to American Express and Bank of America for unlawful practices associated to bank card rewards applications. The CFPB will proceed to watch these applications and can take vital motion on these points as applicable.
CFPB Research Highlights High Interest Rates, Consumer Complaints with Retail Credit Cards
As a part of its work to watch the U.S. bank card market, the CFPB printed new analysis figuring out key findings about retail bank cards. Retail bank cards signify a major a part of the patron bank card market, and one out of each 4 bank card accounts is a non-public label retail card, with over 160 million open accounts in 2024. The CFPB discovered that retail playing cards—greater than 80 p.c of that are issued by 4 massive banks—are costlier than common function playing cards, with 90 p.c of retail playing cards reporting a most annual share price (APR) above 30 p.c, in comparison with solely 38 p.c of non-retail common function playing cards in a single CFPB survey pattern. In December 2024, non-public label playing cards for the highest retailers had a mean APR of 32.66% for brand spanking new accounts.
In complaints submitted to the CFPB, shoppers have additionally reported experiencing aggressive gross sales techniques on the level of sale, lack of ability to redeem promotions, and frustration with paper assertion charges and late charges. Private label retailer playing cards make up a disproportionate quantity of late payment quantity in comparison with their share of account quantity, based on the CFPB’s evaluation.
A New, Unbiased Way to Explore Credit Cards and Find Lower Interest Rates
The CFPB additionally launched Explore Credit Cards, a instrument that helps folks make apples-to-apples comparisons about choices within the bank card market, utilizing open knowledge. Unlike current comparability websites which will characteristic a restricted number of playing cards with excessive annual charges and APRs, depend on kickback schemes, and settle for cash to advertise playing cards, the CFPB’s new instrument gives unbiased, complete knowledge for greater than 500 playing cards, and the information is out there to everybody. Earlier this 12 months, the CFPB issued a round explaining that corporations working current buying instruments can break the legislation after they steer shoppers to sure merchandise or lenders due to kickbacks.
The instrument addresses an absence of value competitors within the bank card market: regardless of vital price variations between issuers serving comparable prospects, folks can’t simply examine rates of interest earlier than making use of. By enabling shoppers to discover playing cards primarily based on credit score rating vary, rates of interest, charges, and rewards choices, the instrument additionally affords shoppers with the next diploma of certainty when trying to find playing cards for his or her scenario.
The knowledge and gear will promote extra competitors within the bank card market and permit smaller suppliers and corporations with higher presents an opportunity to compete. The CFPB can also be inviting extra corporations to contribute to the information set, to guarantee that the knowledge can minimize by way of the advertising and marketing on pay-to-play platforms.
The CFPB beforehand used the identical comparability knowledge to indicate that the 25 largest bank card issuers charged rates of interest 8 to 10 share factors greater than smaller banks and credit score unions – a distinction that may value the typical cardholder $400 to $500 per 12 months. By requiring issuers to report their precise common rate of interest by credit score tier and making this knowledge public, folks have entry to data to seek out the very best charges primarily based on their scenario and desires.
By legislation, the 25 largest issuers of bank cards and 125 others chosen by the CFPB as a consultant pattern of all issuers are required to submit knowledge to the CFPB. Additional issuers can voluntarily contribute their knowledge. The CFPB invitations voluntary knowledge submissions, significantly from smaller issuers, so that they have an opportunity to advertise their credit score merchandise in a market sometimes dominated by pay-for-play. The subsequent publication shall be in Spring 2025.
Read at this time’s round on bank card rewards applications.
Read the Issue Spotlight on the High Cost of Retail Credit Cards.
Explore bank cards with the CFPB’s new instrument.
Consumers can submit complaints about monetary services by visiting consumerfinance.gov/criticism or by calling (855) 411-CFPB (2372).
Employees who consider their firm has violated federal client monetary safety legal guidelines are inspired to ship details about what they know to whistleblower@cfpb.gov. To be taught extra about reporting potential trade misconduct, go to consumerfinance.gov/whistleblower.
The Consumer Financial Protection Bureau is a twenty first century company that implements and enforces Federal client monetary legislation and ensures that markets for client monetary merchandise are truthful, clear, and aggressive. For extra data, go to www.consumerfinance.gov.
