The Consumer Financial Protection Bureau (CFPB) has recently issued a circular addressing concerns about deceptive practices in credit card reward programs. The agency warned that specific credit card issuers might be violating federal law by devaluing earned rewards, obscuring conditions for earning and retaining rewards and failing to deliver promised benefits.
The CFPB highlighted that since 2019, over 90% of the general-purpose card spending has been on rewards credit cards. By the end of 2022, 75% of general-purpose credit cards offered rewards. Consumers have reported difficulties in redeeming rewards and unexpected devaluations due to policy changes by issuers or their partners.
The circular emphasized that devaluing earned rewards, hiding conditions in fine print, and failing to deliver promised benefits could constitute unfair, deceptive, or abusive acts or practices under federal law.
Key Takeaways
- Deceptive Practices in Credit Card Rewards Programs: The CFPB is addressing issues such as devaluing earned rewards, obscuring terms for earning or redeeming them, and failing to deliver promised benefits, which may violate federal laws prohibiting unfair, deceptive, or abusive acts or practices (UDAAP).
- Transparency and Consumer Protection Tools: The CFPB launched the “Explore Credit Cards” tool to enhance competition and transparency, allowing consumers to compare over 500 credit card options using unbiased data. This initiative aims to empower consumers to make informed financial decisions.
- Retail Credit Cards and High Costs: Retail credit cards often carry higher costs than general-purpose cards, with more than 90% having maximum APRs exceeding 30%. The CFPB highlights the disproportionate impact of these cards on late fees and consumer dissatisfaction.
- Industry Response and Regulatory Challenges: The Electronic Payments Coalition criticized the CFPB’s actions as politically motivated, arguing that credit card rewards are essential for many Americans. Ongoing scrutiny of the industry includes the Capital One–Discover merger, which raises concerns about competition and consumer choice.
CFPB Targets Deceptive Practices in Credit Card Rewards Programs
The CFPB has recently intensified its scrutiny of deceptive practices in credit card rewards programs, particularly those resembling bait-and-switch tactics. These practices involve enticing consumers with attractive rewards, which later diminish their value or make them difficult to redeem. Such actions erode consumer trust and violate federal laws prohibiting unfair, deceptive, or abusive acts or practices (UDAAP).
On December 18th, the CFPB issued a circular to law enforcement agencies, highlighting potential legal violations by credit card companies that devalue earned rewards or obscure the terms for earning and redeeming them. The Bureau emphasized that such practices could constitute unfair or deceptive acts, urging other regulators to take action against these schemes.
- Devaluation of Earned Rewards: Some credit card issuers reduce the value of rewards that consumers have already accumulated. This devaluation can occur through changes in redemption rates or by increasing the points or miles required for certain rewards, effectively diminishing the benefits consumers were promised.
- Obscured Conditions for Earning or Retaining Rewards: Issuers may bury critical terms and conditions in fine print or use vague language, making it difficult for consumers to understand the requirements for earning or maintaining rewards. Such lack of transparency can lead to consumers being unfairly denied rewards they believed they had earned.
- Not Delivering the Said Benefits: Technical issues or system failures can prevent consumers from redeeming rewards. When issuers do not address these problems promptly, consumers may lose out on benefits they were led to expect.
These deceptive practices have significant financial implications for consumers. Since 2019, over 90% of general-purpose credit card spending has been on rewards cards, indicating the importance consumers place on these programs. When rewards are devalued or rendered inaccessible, consumers may not receive the benefits that influenced their choice of credit card, leading to financial losses and diminished trust in financial institutions.
The CFPB has acted against companies like Bank of America and American Express for unlawful practices involving credit card rewards programs. The agency plans to monitor these programs and address any issues as needed.
CFPB Director Rohit Chopra criticized major credit card issuers for using deceptive tactics to attract consumers to expensive cards, prioritizing their profits while withholding promised rewards. He stated that companies should fulfill those commitments when advertising cashback offers or complimentary airfare. The CFPB is addressing these misleading practices and working to encourage greater competition in the credit card industry to safeguard consumers and expand their options.
In the same release, CFPB published new research focusing on retail cards, a significant consumer credit card market segment. As of 2024, private-label retail cards represent 25% of all credit card accounts, totaling more than 160 million open accounts.
According to the CFPB, retail credit cards carry higher costs than general-purpose cards. Specifically, more than 90% of retail credit cards have maximum APRs over 30%, whereas non-retail general-purpose credit cards have a maximum APR of 38%. In December 2024, the average APR for new accounts on top retailer private label cards was 32.66%.
Consumer complaints reported to the CFPB highlight issues, including aggressive sales tactics during purchases, challenges in redeeming promotions, and dissatisfaction with fees related to paper statements and late payments. The CFPB’s analysis reveals that private-label store cards contribute disproportionately to late fee volumes relative to their account volume.
The CFPB also encourages more credit card issuers, especially smaller providers, to contribute to the dataset to enhance market competition and broaden consumer choices. The next update to this publication is scheduled for Spring 2025.
The CFPB has introduced “Explore Credit Cards,” an online system designed to help consumers compare over 500 credit cards using unbiased, comprehensive data to solve these issues. This resource aims to enhance competition and transparency in the market, enabling consumers to make more informed decisions and potentially avoid cards with deceptive rewards programs.
Harsh Response From EPA Amidst Industry Scrutiny and Major Merger Developments
The CFPB’s efforts come during the high-activity shopping and travel period at the end of the year. Retail card issuance is typically seasonal, with a noticeable increase in November and December due to elevated holiday sales and promotional offers.
However, the Electronic Payments Coalition responded by describing the CFPB’s actions as politically driven and disconnected from the practical ways American families use credit card rewards to mitigate the impact of inflation.
EPC Executive Chairman Richard Hunt stated that credit card rewards are crucial for Americans across all income levels, particularly during the holiday season, as they help manage inflation and cover essential expenses like gas, groceries, and travel to visit family. He argued that if regulators genuinely aimed to support Americans, their attention should be directed toward large retailers and grocery chains that significantly increased prices, disrupted the supply chain, and harmed small businesses while undermining competition during the pandemic.
EPC continued that the CFPB’s investigation into credit card rewards began after Senators Dick Durbin and Roger Marshall used the Bureau and the Department of Transportation to target opposition to their proposed legislation that would impose new regulations on credit cards.
EPC further highlights that the CFPB’s press release gives a glimpse of the competitiveness of the credit card market, pointing out that consumers have access to over 500 credit card options and that the Bureau’s comparison tool underscores the range of benefits offered by these cards.
The CFPB’s circular warns credit card issuers that engaging in bait-and-switch tactics with rewards programs can lead to legal consequences. The Bureau has previously taken action against issuers for similar practices, including ordering financial restitution to affected consumers. Issuers are advised to review their rewards programs to ensure transparency and fairness, thereby avoiding potential violations of consumer protection laws.
In a related development, Capital One Financial Corporation and Discover Financial Services have scheduled special meetings for their shareholders on February 18, 2025, to vote on Capital One’s proposed acquisition of Discover. The all-stock deal, valued at $35.3 billion, aims to create a formidable competitor in the credit card industry. The merger has faced scrutiny from regulators and consumer advocates concerned about potential impacts on competition and consumer choice.
Conclusion
The CFPB’s circular underscores the importance of transparency and fairness in credit card rewards programs, highlighting issuers’ legal and ethical obligations to uphold their commitments. With consumers’ growing reliance on reward cards, deceptive practices such as devaluing earned rewards and obscuring terms pose significant risks to consumer trust and financial stability.
The introduction of tools like “Explore Credit Cards” aims to provide consumers with the information needed to make informed choices while fostering competition in the market. However, the debate surrounding the CFPB’s actions and the broader credit card industry, including major merger developments, reflects the complexity of balancing consumer protection, market competition, and corporate interests.
As regulatory scrutiny intensifies, credit card issuers must reassess their practices to align with legal standards and consumer expectations, ensuring a fairer and more transparent credit card ecosystem.
