On December 18, 2024, the Consumer Financial Protection Bureau (the “CFPB”) issued a circular to other law enforcement agencies warning that some credit card companies operating rewards programs may be breaking the law, and urging them to take action. The practices in question include, among others, illegally devaluing rewards points and airline miles. The CFPB also published research which found that retail credit cards charge much higher interest rates than traditional cards. In its circular, the CFPB provides a detailed review of these issues.
Credit Card Rewards Program Schemes
According to the CFPB, consumers that use credit card rewards programs have reported that rewards can be difficult to redeem or are sometimes devalued due to the policy changes of partners. In May 2024, the CFPB issued a report which found that consumers were experiencing such issues (we previously discussed the report here). The CFPB’s circular highlighted various ways that credit card companies could violate federal law:
- Devaluing of Earned Rewards. When a company deflates the rewards accumulated by consumers on account of their rewards cards, it is engaging in an “unfair or deceptive practice,” resembling a bait-and-switch scheme and a violation of the Consumer Financial Protection Act.
- Hiding the Conditions for Earning or Keeping Rewards. Fine print disclaimers and vague terms buried in a contract may conflict with prominent promotional language highlighting the rewards that consumers can earn. Revoking, canceling, or preventing consumers from redeeming rewards based on such conditions may also be an unfair or deceptive act or practice. The Bureau’s approach on fine print disclaimers was made clear in a June 2024 circular. (See our discussion here.).
- Failing to Deliver Promised Benefits. System failures which result in consumers losing points when attempting to redeem them may be considered an unfair or deceptive practice. Again, while extremely aggressive, this view is not too dissimilar from their recent settlement against a financial institution regarding an allegedly failed system upgrade. (See our discussion here.)
Explore Credit Cards
The CFPB also launched, Explore Credit Cards, an online tool that consumers can use to compare more than 500 credit cards using (according to the Bureau) “unbiased, comprehensive data,” unlike existing sites that feature a limited selection of cards with high fees and interest rates, or may be biased due to kickback schemes. The tool aims to enhance price competition in the market, giving smaller providers a chance to compete. Notably, the product may not be as useful as similar products in the marketplace as the Bureau’s “tool” is already dated (with data as of June 2024), and only provides updates “every six months.”
Putting it into Practice: The CFPB’s circular suggests that it is now taking a more active role in the oversight of credit card issuers, especially those that offer credit card rewards programs. By encouraging other regulators and enforcement agencies to become involved as well, it can be expected that credit card rewards programs may face increased scrutiny moving forward. Entities operating in this space should review the Bureau’s circular to assess its applicability.
