On September 3, the Consumer Financial Protection Bureau issued a new bulletin warning credit card issuers against certain interest-rate promotions that, it claimed, posed a risk of deceptive or abusive conduct. The transactions at issue involve solicitations that “offer a promotional annual percentage rate on a particular transaction over a defined period of time” and include convenience checks, deferred interest/promotional interest rate purchases, and balance transfers. The CFPB indicated that it was particularly concerned with companies that advertised offers of zero or lower interest rates for specific purchases or balances transferred from another credit card, then surprised consumers with unforeseen interest charges down the road.
“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said CFPB Director Richard Cordray. “Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”
Further, the CFPB emphasized that marketing materials used by some credit card issuers fail to adequately and clearly convey the full terms of the credit relationship. For instance, it claimed that some materials do not clearly disclose that a consumer who accepts such a promotional offer will lose their grace period on new purchases if they do not pay the entire statement balance, including the total amount subject to the promotional APR, by the payment due date. In its October 2013 CARD Act Report, the CFPB raised concerns about the level of consumer understanding of credit card grace periods, including how they work and whether there are appropriate consumer disclosures.
According to the newly-issued bulletin, the CFPB “expects credit card issuers to incorporate into their compliance management systems adequate measures to prevent violation of Federal consumer financial laws, including the Dodd-Frank Act’s prohibitions on unfair, deceptive, or abusive acts or practices[,]” including ensuring that:
- All solicitations, applications, account-opening materials, and convenience checks comply with the requirements in Regulation Z;
- All marketing materials clearly, prominently, and accurately describe the material costs, conditions, and limitations associated with the offers; and
- All marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.