CFPB Warns Consumers About Bait-and-Switch Credit Card Rewards
CFPB Warns Consumers About Bait-and-Switch Credit Card Rewards.
Key Insights
The Consumer Financial Protection Bureau has alerted both consumers and law enforcement entities regarding potential legal violations by credit card companies that offer rewards programs, as well as issuers of store credit cards.
Reports from consumers indicate that credit card companies with rewards programs have occasionally diminished the value of rewards, unlawfully revoked earned rewards, and created obstacles in the process of redeeming those rewards.
Additionally, the bureau cautioned that store credit cards generally impose higher interest rates compared to standard credit cards.
The Consumer Financial Protection Bureau (CFPB) stated on Wednesday that credit card companies offering reward programs, as well as issuers of store credit cards, may be in violation of the law.
"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," said Rohit Chopra, director of the CFPB.
The issuance of the CFPB warning is strategically timed. Consumers are especially susceptible during the peak shopping and travel periods at the end of the year, particularly in November and December, when retail sales and promotional activities are at their highest.
The CFPB has identified that certain credit card companies may be participating in unlawful bait-and-switch tactics by initially promoting rewards programs to attract consumers to apply for a credit card, only to subsequently diminish the value of the points and airline miles accrued.
"When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them," said Chopra.
The CFPB has also cautioned that store credit cards could impose interest rates that are considerably higher than those associated with conventional credit cards.
Numerous companies made commitments regarding points and rewards but subsequently failed to fulfill them.
Since 2019, over 90% of credit card expenditures have been attributed to rewards credit cards, according to the Consumer Financial Protection Bureau (CFPB). Consumers are incentivized to utilize these rewards cards through attractive sign-up bonuses, which may include cash, points, and miles, in addition to rewards for specific spending categories.
Nevertheless, consumers have reported that their credit card issuers have diminished the value of their accumulated rewards, which the CFPB likened to a bait-and-switch tactic.
Additionally, credit card companies may revoke customers' earned rewards by employing misleading fine-print disclaimers or ambiguous contractual language. In 2023, the CFPB mandated that Bank of America reimburse $100 million to its customers, and in 2012, it required American Express to return $85 million.
According to federal regulations, credit card companies offering reward programs are obligated to ensure that customers can redeem their rewards, even in the event of a system malfunction that hinders redemption.
This marks the CFPB's second caution regarding credit card reward programs. In May, the bureau convened a hearing with the U.S. Department of Transportation and published a report detailing various challenges encountered by consumers.
The ongoing issues with credit card rewards programs are a clear example of deceptive practices that undermine consumer trust. Credit card companies continue to lure customers in with attractive rewards offers, only to diminish their value or make them nearly impossible to redeem. This bait-and-switch behavior, coupled with high interest rates on store credit cards, only exacerbates the financial strain on consumers.
Despite regulatory warnings, these companies continue to prioritize profits over fairness, leaving customers frustrated and disappointed. Until stricter regulations and accountability measures are put in place, consumers will remain vulnerable to these exploitative practices.
