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The Consumer Financial Protection Bureau early Wednesday released a circular to law-enforcement agencies warning that operators of credit card rewards may be violating a prohibition against unfair, deceptive, or abusive acts or practices by devaluing earned credit card points and airline miles.
The CFPB issued the circular in part due to consumer complaints of difficulties in redeeming credit card rewards. In some cases earned rewards have been devalued by policy changes to a rewards program, according to the complaints. Since 2019, more than 90% of general-purpose credit card spending has occurred on rewards cards, the CFPB says.
Examples of deceptive practices by rewards cards issuers and their partners, as outlined in the circular, include the use of “vague terms” or “fine print disclaimers” that consumers may overlook to revoke, cancel, or prevent the redemption of rewards.
“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,” the bureau says.
Other examples of violations include deducting rewards from a cardholder’s balance without the cardholder receiving the corresponding benefit of the rewards, in some cases because of technical failures when redeeming rewards points on merchant partners’ systems.
“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,” CFPB Director Rohit Chopra says in a statement. “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.”
In response, the Electronic Payments Coalition characterized the CFPB’s action as “politically motivated and out of touch with the realities of how American families” rely on credit card rewards to help offset the sting of inflation.
“Americans of all incomes depend on credit card rewards, especially during the holidays to help fight inflation and cover necessary expenses ranging from gas to groceries to trips to visit loved ones,” EPC Executive Chairman Richard Hunt says in a statement. “If regulators truly wanted to help Americans….they would focus on the corporate mega-stores and grocery conglomerates that exorbitantly hiked prices on consumers and manipulated the supply chain to hurt small businesses and undercut their competition during the pandemic.”
At the same time, the CFPB also released research on retail credit cards that shows the cards typically charge “significantly higher interest rates” than general-purpose credit cards.
More than 80% of retail cards are issued by four large banks, with 90% of retail cards reporting a maximum annual percentage rate above 30%, compared to 38% of non-retail general purpose cards, the CFPB found in one survey sample. This month, private-label cards for the top retailers carry an average APR of 32.66% for new accounts, the CFPB says.
In response, the CFPB has launched Explore Credit Cards, a tool that allows consumers to compare the features of more than 500 credit cards, including rewards, fees, and interest rates. The CFPB says the tool is intended to foster increased competition in the credit card market.
In other credit card news, Capital One Financial Corp. and Discover Financial Services announced each company will hold a special meeting of stockholders on Feb. 18 for the companies’ respective common stockholders to consider and vote on Capital One’s proposed acquisition of Discover and related matters.
The respective meetings will be held nearly a year to the day after Cap One announced plans to acquire Discover.
The two parties will each distribute a definitive joint proxy statement, which also constitutes a prospectus of Capital One, to their respective common stockholders as of the record date for each company’s special meeting.
Capital One will hold its meeting at 10 a.m. Eastern Standard Time at its headquarters in McLean, Va., while Discover will simultaneously hold its meeting at 9 a.m. Central Standard Time at its headquarters in Riverwoods, Ill.
