The Consumer Financial Protection Bureau (CFPB) has cautioned companies against what it views as illegal or unlawful credit card rewards practices, sharing new research about retail credit card issues and unveiling a novel credit card comparison tool for consumers. Key developments include:
Credit Card Rewards: A CFPB Circular on credit card rewards programs highlights three primary areas:
- Devaluation of earned points
- The CFPB focused on rewards programs that include redemption options from various merchants. If a merchant drops out of such a rewards program, the CFPB said, that could result in a UDAAP if the program operator does not take “reasonable measures to generally maintain the value of the rewards, such as by increasing points usable at other merchant partners, allowing customers to cash out points, replacing lost rewards with other rewards, or by other means.” Further, if the actions of a merchant partner cause the reward points to be devalued, the card issuer may be liable for a UDAAP.
- When card issuers merge, the CFPB said, the issuers should take steps “to convert customers’ points to the new system without a reduction in points value.”
- Devaluing points already earned could constitute a UDAAP, the CFPB said. The Bureau encouraged “enforcers” to evaluate internal data regarding the dollar value of points over time—if the dollar value fell, in the CFPB’s eyes this could indicate a “bait and switch” or other UDAAP.
- Hidden conditions
- The CFPB reemphasized its focus on rewards program terms and conditions. In particular, the CFPB identified these practices as potentially unfair:
- Revoking or canceling rewards based on vague catch-all language in program terms, such as “gaming” or “abuse.”
- Revoking rewards due to actions outside the consumers’ control, such as unilateral closures of the account by the issuer.
- Offering promotional sign-up opportunities that are not honored due to “churning” by consumers, are shortened due to the amount of time to receive and activate the card, or are available only through certain application channels.
- Inability to redeem rewards due to technical issues
- The CPFB noted that it would consider more than just the value of rewards that were lost.
- Even if a company restores rewards points/miles, the CFPB argued an injury may still arise from lost time, purchasing opportunities or efforts by consumers to address this issue.
Retail Credit Cards: The CFPB also focused in an Issue Spotlight on retail credit cards, which the CFPB defined as covering both co-brand general purpose credit cards as well as private label credit cards.
- The Issue Spotlight touched on nearly every aspect of retail credit cards, including partnership dynamics, marketing, promotional APRs, deferred interest and higher interest rates generally. It also covered second-look products with different pricing and terms, rewards and redemption, whether consumers understood that they were signing up for a credit card vs. a loyalty card or a private label vs. co-brand card and add-on insurance plans.
New CFPB-Created “Explore Credit Cards” Tool: The CFPB has also announced the creation of a new Explore Credit Cards tool, which allows consumers to compare credit cards. Here’s how it works:
- Consumers enter their broad credit score range (<619, 620-719, >720), their state and their goal, such as paying less interest, transferring a balance, making a big purchase, avoiding fees, building credit or earning rewards.
- The tool produces a list of credit cards that meet the criteria. Consumers can sort by purchase APR, balance transfer APR or name. The CFPB also provides a ranking of the amount of interest a consumer would pay. Consumers also can learn more about cards’ terms. While there is no link to apply directly for any cards, the tool includes the issuers’ websites and phone numbers.
- While the tool itself is new, the data populating it comes from the CFPB’s semiannual credit card plan survey. That survey covers the top 25 card issuers as well as 125 other issuers. As a result, the tool offers data for more than 500 cards. The CFPB invites voluntary data submissions from smaller issuers that would like their cards to be included in the tool.
- A CPFB press release highlights the tool’s role in addressing a “lack of price competition in the credit card market.” It also contrasts the tool with other comparison sites “that may feature a limited selection of cards with high annual fees and APRs, rely on kickback schemes, and accept money to promote cards.”
Key Takeaways for Companies:
The guidance on credit card rewards and retail credit cards reiterates the Bureau’s prior positions, as articulated under Director Chopra’s leadership in supervisory highlights, enforcement actions, press releases, speaking engagements and blog posts.
The CFPB is not breaking substantively new ground on these topics. However, they’re not to be ignored.
Now is the time for companies to carefully review their rewards program terms and conditions and retail credit card practices, as these topics may continue to find traction under new CFPB leadership.
The Explore Credit Cards Tool, on the other hand, is a novel offering that demonstrates both the Bureau’s continued focus on comparison shopping sites as well as the CFPB’s increased attention to consumer data—consistent with the 1033 final rule (learn more) and the data broker/FCRA proposed rule (learn more) issued this year.
To learn more about the issues explored above or what impact they may have on your business, please reach out to Sasha Leonhardt.