CFPB Warns Credit Card Companies on Deceptive Marketing Tactics

Concerned that some credit card companies may have been luring in consumers with low interest rates only to hit them with higher or “surprise” charges, the Consumer Financial Protection Bureau (CFPB) issued a warning today against those firms that may be employing deceptive marketing.

In a bulletin released Wednesday, the CFPB puts credit card issuers on notices about clearly disclosing the costs and risks of certain promotional offers so that consumers may better understand what they are signing up for.

“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said CFPB Director Richard Cordray in a written statement. “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.”

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Specifically, the CFPB highlights concerns regarding the marketing of credit card interest rate offers such as balanced transfers, deferred-interest offers and convenience checks.

Under these promotions, consumers are charged a fee to transfer a balance or make a purchase with their credit card in order to receive a promotional interest rate on that amount for a set period of time. While consumers do not pay interest or a low interest rate for balances subject to the promotion, any additional purchases consumers make with the credit card may incur interest charges right away, the CFPB stated.

“The Bureau believes some companies’ marketing materials do not clearly disclose that consumer must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which they were not charged interest previously,” the CFPB stated in a release. “For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.”

Consumers who are specifically impacted by the alleged deceptive marketing tactics are those who enjoy an interest-fee “grace period” on their credit card purchases, the Bureau noted.

“The only way for these consumers to avoid interest charges on new purchases made with the credit card is to pay off their whole statement balance, including the promotional balance and the new purchases, by their monthly billing due date,” the CFPB said.

In its October 2013 CARD Act Report, the CFPB raised concerns about the level of consumer understanding around credit card grace periods, specifically touching on how they work and whether there are appropriate consumer disclosures regarding them.

The agency’s examinations of large banks and credit card issuers indicated that some companies may be failing to adequately explain the terms of certain interest-rate promotional offers, which may in turn leave consumers confused about why they are incurring new interest charges on their purchases.

The CFPB bulletin issued today explains that issuers risk engaging in deceptive and abusive marketing practices if their marketing materials fail to convey that promotional rate offers may cause consumers to lose the interest-free grace period and rack up unexpected fees.

Also in the bulletin, the CFPB stresses that it expects credit card issuers to fulfill their legal obligations by clearly communicating costs, conditions and limitations associated with promotional offers.

Written by Jason Oliva

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