The Consumer Financial Protection Bureau (CFPB) put out a warning about some credit card companies operating rewards programs that may be breaking the law.
The warning addresses practices in credit card rewards programs. It notes that companies may violate federal law when they:
• Devalue earned rewards: Consumers make decisions on whether to open or use a credit card based on the value of card benefits and rewards conveyed by a company’s advertising and other communications. If the company later deflates the value of a customer’s accrued awards, this may be an unfair or deceptive practice resembling a bait-and-switch scheme.
• Hide the conditions for earning or keeping rewards: Fine print disclaimers or vague terms buried in a contract may unlawfully conflict with prominent promotional language advertising the rewards consumers can earn. Companies may also illegally rely on fine print to cancel valuable rewards that consumers have already earned. If consumers’ receipt of rewards is revoked, canceled, or prevented based on buried or vague conditions, that may be an unfair or deceptive act or practice.
• Fail to deliver promised benefits: Companies operating rewards programs are responsible for ensuring consumers can redeem the rewards they have earned, including coordinating with merchant partners and vendors. If system failures result in consumers losing points when attempting to redeem, this may be considered an unfair or deceptive practice.
“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,” CFPB Director Rohit Chopra said. “When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them. The CFPB is taking aim at bait-and-switch tactics and promoting more competition in credit card markets to protect consumers and give people more choice.”
The CFPB has taken action against issuers for illegal practices related to credit card rewards programs and will continue to monitor these programs.
In addition, the CFPB published new research finding that retail credit cards charge significantly higher interest rates than traditional cards.
Specifically, the CFPB found that retail cards are more expensive than general purpose cards, with 90 percent of retail cards reporting a maximum annual percentage rate (APR) above 30 percent, compared to only 38 percent of non-retail general purpose cards. In December 2024, private label cards for the top retailers had an average APR of 32.66 percent for new accounts.
Finally, the CFPB launched a new tool, Explore Credit Cards, to help consumers find the best credit card rates across both rewards cards and traditional cards. This tool enables consumers to compare more than 500 credit cards using unbiased, comprehensive data.
The data and tool will promote more competition in the credit card market and allow smaller providers and companies with better offers a chance to compete.