In December 2024, the Consumer Financial Protection Bureau (Bureau) rolled out a series of important measures aimed at addressing potential misconduct in the credit card industry, improving consumer protections, and promoting transparency and competition in the market. The Bureau’s initiatives come at a time when credit card usage is peaking during the busy holiday season. Retail credit card sign-ups tend to surge during this period, making it critical for financial service providers to remain compliant with both current and forthcoming regulations.
Crackdown on Potentially Deceptive Credit Card Rewards Programs
In Consumer Financial Protection Circular 2024-07, and in line with the Bureau’s heightened scrutiny of credit card rewards programs, the Bureau alerted law enforcement agencies to practices within credit card rewards programs that the Bureau considers deceptive, many of which are core components of many issuers’ marketing strategies. Specifically, the Bureau highlighted three areas where credit card issuers could be found in violation of the law for unfair or deceptive acts or practices:
- Devaluation of Earned Rewards: When issuers reduce the value of rewards after promising those rewards to customers, resulting in a potential “bait-and-switch” tactic
- Lack of Transparency in Terms and Conditions: When issuers bury key terms for earning or maintaining rewards in fine print, and especially when those buried terms conflict with more prominent promotional language or leads to customers losing rewards that they have already earned
- Failure to Deliver Promised Benefits: When issuers fail to ensure that consumers can redeem their rewards, particularly if technical issues or partner failures result in a loss of earned points or benefits
Retail Credit Cards: High Interest Rates and Increased Scrutiny
The Bureau also published an Issue spotlight that highlights the risks associated with retail credit cards. These store-specific cards, which are often issued by a handful of large banks, tend to carry much higher interest rates compared to general-purpose credit cards. Over 90% of retail cards now carry APRs exceeding 30%, while only 38% of non-retail credit cards carry APRs in excess of 30%. Retail credit cards also charge a disproportionate percent of fees compared to their share of account volume.
Additionally, the Bureau has reported a high volume of consumer complaints related to retail credit cards, in which customers have complained about aggressive marketing tactics, issues with redeeming promotions, and frustration over late fees and paper statement charges. These complaints have prompted the Bureau to increase its oversight of the retail credit card sector.
Regulatory Expectations and Future Data Releases
The Bureau has indicated that it will continue collecting and publishing data from credit card issuers. Starting in Spring 2025, the Bureau plans to release updated data, providing greater insights into credit card interest rates, fees, and rewards structures across the industry. By making this information public, the Bureau aims to drive more informed decision-making among consumers and encourage price competition.
As the Bureau continues to gather data from the largest 25 credit card issuers, as well as other selected participants, financial institutions should be prepared for more transparency around APRs, fees, and reward programs.
The post CFPB Increases Oversight of Credit Card Practices appeared first on Consumer Finance Insights (CFI).