CFPB considers tightening oversight of credit card rewards programs Kilpatrick

On May 9, 2024, the CFPB released a comprehensive report detailing Consumer Reports’ findings on challenges to credit card rewards programs. This report, along with comments made by CFPB Director Rohit Chopra at a recent hearing on credit card and airline rewards programs, indicate that the bureau is considering increasing regulatory and/or enforcement activities related to such rewards programs.

For many consumers, the benefits offered by credit card rewards programs play an important role in choosing a credit card, the report said. However, in recent years, consumers have made a series of complaints about the administration and marketing of these programs, suggesting that they may engage in potentially harmful and deceptive practices. As a result, the CFPB turned its regulatory perspective to the credit card industry, specifically examining the practice of credit card rewards programs.

In a joint hearing with the U.S. Department of Transportation, Consumer Financial Protection Bureau Director Chopra claimed that rewards programs have grown into a “major asset and competitive weapon” for credit card issuers, adding that while consumers accumulate money for them Points are assigned a monetary value, but the rewards program becomes a “primary asset and competitive weapon” for credit card issuers. Director Chopra expressed concern that rewards programs could increase the number of points that need to be redeemed for purchases, make it more challenging for consumers to redeem points, impose restrictions on what can be purchased with reward points, or revoke all credits if there are not enough. Reward obtained.

The Chopra executive also criticized the industry's lack of transparency regarding the higher interest rates on rewards cards compared to non-rewards cards, suggesting that companies avoid informing cardholders of opportunities to save on interest with lower-rate cards.

CFPB Report on Credit Card Rewards

The CFPB report analyzed hundreds of consumer complaints related to the administration of credit card rewards programs and identified four main areas of concern:

  • Unexpected promotional conditions
  • depreciation
  • redemption problem
  • Cancel

Each topic is further described below to inform credit card issuers and rewards program administrators about aspects of rewards programs that may attract regulatory scrutiny and provide a roadmap for updating rewards program policies, terms and conditions, and marketing materials to mitigate Impact of regulatory scrutiny.

  1. Unexpected promotional conditions

    The CFPB found that advertising materials for credit card rewards programs often failed to clearly reflect requirements in the program's terms and conditions regarding consumers' ability to use rewards. This results in consumers not receiving the benefits advertised, the report said. The CFPB claims this practice “[s] Sign-up offers or other promotional incentives serve as bait. The report details instances where customers applied for credit cards based on certain bonus offers but were subsequently hit with different terms or fewer rewards. This difference is attributed to the various channels through which credit cards are promoted, each of which may offer different terms or sign-up bonuses.

    The report also describes consumers' negative experiences with sign-up bonus restrictions, where unclear or hidden conditions prevent them from receiving promotional offers they believe they are eligible for. This includes limits on the number of times you can receive a sign-up bonus, as well as confusion about which purchases count toward the bonus minimum payout. The report notes that issuers typically do not count cash equivalents such as gift cards toward these minimums and may revoke reward earnings in the event of a return or dispute, further complicating the process of earning promotional rewards.

  2. Reward depreciation

    Another issue outlined in the report is consumer complaints about so-called “rewards inflation,” the devaluation of credit card reward points. Many credit card issuers reserve the right to change their rewards programs to effectively reduce the value of points a consumer has earned. For example, the issuer may increase the number of points required for certain redemptions. Additionally, the report shows that card issuers are not adequately protecting consumers from actions taken by their rewards partners. For example, rewards partners could decide to remove their benefits from the rewards program or increase rewards requirements, which could result in an effective devaluation of consumer rewards points, according to the report.

  3. redemption problem

    Consumers have also complained about difficulty redeeming rewards due to technical issues and poor customer service. The CFPB report highlights one case in which a rewards redemption portal was down for several weeks for maintenance, leaving consumers unable to use their rewards. Additionally, the report found that when consumers have questions about rewards, they often face poor customer service and long wait times. The CFPB said such technical glitches and customer service issues created obstacles to redemptions, with consumers reporting being redirected between their banks and merchant partners without being able to resolve them. The report noted that some card issuers failed to reinstate rewards when cardholders were unable to redeem them through no fault of their own.

  4. Withdraw rewards already received

Finally, the CFPB report notes that consumers are frustrated by account closures or the sudden forfeiture of rewards due to policy expiration. The report found that issuers are withdrawing hundreds of millions of dollars in rewards each year, with 4% of account holders losing some of their rewards every quarter. Consumers who have experienced reward revocations complain that they were misled, claiming that credit card issuers did not adequately communicate with consumers about upcoming account closures and reward expiration dates.

Key points for credit card issuers and rewards program administrators

While it is unclear whether and to what extent the CFPB will seek to implement regulations related to credit card rewards program practices or what form such regulations would take, credit card issuers currently designing or restructuring their rewards programs should be aware of several highlighted issues. Key points based on the CFPB report and Director Chopra’s comments:

  1. regulatory review: The CFPB is closely reviewing credit card rewards programs for practices that may be considered unfair, deceptive, or abusive to consumers, and credit card issuers should expect increased scrutiny and potential regulatory action in this area. The CFPB's approach is consistent with the government's broader focus on consumer protection and reducing the costs associated with consumer credit card charges. To mitigate the impact of such scrutiny, credit card rewards programs should be designed to not only appeal to consumers but also provide real value without hidden costs or misleading practices.
  2. transparency and fairness: The CFPB report places a strong emphasis on transparency and fairness in the administration of award programs. The CFPB has identified a pattern of consumer complaints involving vague or hidden conditions in rewards programs, point devaluation, challenges in redeeming rewards, and the revocation of earned rewards. Plans should be designed with clear terms and conditions to avoid these problems. Credit card issuers should ensure that changes to rewards, such as depreciation or expiration policies, are clearly communicated to consumers in advance.
  3. competitive practices: The CFPB is concerned about exclusive deals and practices that may hinder competition, such as higher interest rates on rewards cards compared to non-rewards cards. Credit card issuers should consider how their rewards programs impact the broader market and whether they are maintaining a level playing field with competing brands in their credit card lineups.
  4. potential legislative changes: The legal landscape for credit card rewards programs may change as the CFPB and other government partners consider action. Credit card issuers should stay informed of potential changes and be prepared to adjust their plans accordingly.

In light of these points, credit card issuers should carefully evaluate their rewards program policies and procedures, as well as the terms and conditions of their rewards programs and marketing materials, to ensure that they meet the regulatory expectations and consumer protection standards described in the CFPB report. Legal counsel may be needed to navigate the complexities of compliance and reduce the risk of future enforcement actions.

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