CFPB Report Highlights Consumer Frustrations with Credit Card Rewards Programs
The CFPB issued a report highlighting the various problems consumers encounter with credit card rewards programs.
In an "Issue Spotlight," the CFPB analyzed several hundred consumer complaints relating to the administration of credit card rewards programs and identified four recurring themes that resulted in consumers not receiving the rewards they were promised:
- "Consumers fail to receive promotional rewards when financial institutions impose vague or hidden conditions: Consumers indicate that requirements detailed in the fine print of rewards programs’ terms and conditions do not match marketing materials, turning sign-up offers or other promotional rewards into a "'bait and switch.'"
- "Consumers lose benefits that they previously earned when issuers and merchants devalue rewards: Consumers state that issuers and merchants reduce the value of rewards already earned by increasing the number of points or miles needed for a redemption. They also say that card issuers do not protect customers from co-brand partner decisions to remove benefits from merchant 'loyalty' programs or change requirements for achieving status."
- "Consumers face obstacles in receiving their preferred redemptions when companies fail to quickly resolve rewards-related issues: Consumers describe customer service issues and technical glitches that block or delay their redemptions, often by preventing the transfer of rewards to a third-party merchant. They also complain that issuers redirect cardholders to merchants and fail to reinstate rewards when cardholders are unable to redeem them through no fault of their own."
- "Consumers suddenly lose rewards when issuers unilaterally revoke previously earned balances: Consumers indicate that their points, cash back, and miles vanish when an account closes. They also describe financial institutions revoking rewards on open accounts through expiration policies, often without prior communication."
In remarks at the Joint Hearing on Airline and Credit Card Rewards Programs, CFPB Director Rohit Chopra highlighted several issues related to credit card rewards programs, particularly those tied to airline frequent flyer miles. He pointed out that these programs have become multibillion-dollar currency markets where points can be devalued without notice, creating confusion and unfairness for consumers. Mr. Chopra also emphasized the problem of bait-and-switch scams, where promised rewards are not delivered as well as the restrictive practices of large credit card companies that prevent smaller banks from offering competitive rewards. He called for actions to protect consumers, stop deceptive practices and promote a fair, competitive market.
Commentary
This development is notable in large part because it illustrates how the CFPB is paying more attention to credit card rewards and airline frequent flyer miles programs. Along with emphasis on the CFPB working closely together with the U.S. Department of Transportation on credit cards, this is a further reminder of how the CFPB and the Department of Transportation share responsibility for enforcing a number of laws. Let's not forget that credit cards are the most common lending product in this country, with over 550 million cards in circulation and more than a trillion dollars in outstanding debt, so this is an important reminder that federal consumer protection laws apply to rewards programs offered in connection with consumer financial products or services. As one example, the CFPB has taken action against several credit card issuers for engaging in unfair, deceptive, or abusive acts or practices related to rewards programs. Perhaps the largest driver of the regulatory concern here is that credit card rewards programs have become increasingly complex. In particular, the growth of co-brand credit cards and rewards programs, where consumers can transfer miles or points to merchants has added some additional complexity into the marketplace, and the issues are still being worked out. The CFPB states that it has received "a growing number of complaints on how these rewards programs have been administered," and pledges to "continue to monitor credit card rewards programs" and "take necessary action on these issues as appropriate."