The Consumer Financial Protection Bureau (“CFPB”) sent letters to the top retail credit card companies at the beginning of June, encouraging the companies to use more transparent promotions, citing a major retailer’s decision to end deferred-interest programs associated with its credit card. In the letter, the Bureau outlined its concerns that temporary promotions – such as deferred-interest promotions – can surprise consumers with high, retroactive interest charges once the promotion expires.
“With its back-end pricing, deferred interest can make the potential costs to consumers more confusing and less transparent,” said CFPB Director Richard Cordray in a statement. “We encourage companies to consider more straightforward credit promotions that are less risky for consumers.”
Deferred-interest promotions typically are often associated with retail store credit cards and offer consumers a way to buy goods such as appliances and furniture and pay the cost over time. Some cards even permit consumers to purchase medical or dental services under a deferred-interest promotion. Under the majority of these plans, consumers do not pay any interest if they pay off the purchase amount within a set period, usually six months to one year. If any balance remains after the promotional period, credit card companies charge consumers accrued interest dating back to the original purchase. A 2015 report issued by the Bureau concluded that the number of purchases using deferred-interest promotions rose 21 percent between 2010 and 2013.
However, the CFPB has cautioned consumers about the risks associated with deferred-interest promotions, citing lack of transparency on the part of retail credit card companies. The Bureau instead advocates for a zero-percent-interest promotion in its letter to card companies. Under the terms the CFPB outlines, companies would not charge interest retroactively if the balance is not paid off by the end of the promotional period but, instead, would only charge interest on the remaining balance. According to the Bureau, a zero-percent-interest plan would be easier for consumers to understand and would not require the same “robust compliance management systems” associated with deferred-interest promotions.
The CFPB has recently highlighted the complaints received regarding credit cards, noting 116,200 consumer complaints related to credit cards received by the Bureau since its inception in July 2011.