The Consumer Financial Protection Bureau (CFPB) in the United States announced a major crackdown on Wednesday, December 18th, targeting banks and credit card companies engaged in fraudulent practices related to “bait-and-switch” credit cards and diminishing credit card rewards.
According to information released on the official website of the Consumer Financial Protection Bureau, the agency is taking measures to protect consumers from illegal actions by banks and credit card companies and to help people access tools that can save them on credit card loan interest and related costs.
In a statement, CFPB Director Rohit Chopra expressed, “Major credit card issuers often engage in deception, enticing consumers to purchase higher-cost credit cards to boost their profits while refusing to honor consumers’ rightful credit card rewards.”
Chopra also emphasized that if credit card issuers promise cash back rewards or other incentives like free round-trip flights, they should fulfill these promises. The aim of the CFPB’s action is to combat fraudulent practices related to “bait-and-switch” credit cards and credit card rewards, protect consumers, and encourage more competition in the credit card market to provide people with more choices.
In May 2024, the CFPB and the US Department of Transportation held a public hearing to discuss the challenges faced by credit card consumers, as well as the lack of competition in airline companies and credit card rewards programs. A report released by the CFPB during the hearing highlighted various issues consumers face when redeeming credit card rewards.
In its announcement, the Consumer Financial Protection Bureau warned that banks and credit card companies could be in violation of federal laws for the following actions:
Intentionally lowering the value of already earned credit card rewards: Consumers often decide to open or use a credit card based on the value of the rewards and benefits advertised by credit card companies. If a company deliberately reduces the value of accumulated credit card rewards, it could be deemed unfair or deceptive, similar to “bait-and-switch” credit card and reward devaluation fraud.
Hiding conditions for consumers to redeem or retain credit card rewards: By intentionally including hidden terms, disclaimers, or ambiguous clauses in contracts that conflict with the description of rewards consumers are promised in promotional materials, companies may illegally rely on these hidden terms to cancel rewards that consumers have earned. If hidden or unclear terms result in consumers having their rightful credit card rewards revoked, reduced, or inaccessible, it could be considered unfair or deceptive behavior.
Failure to honor previously promised rewards: Companies operating credit card rewards programs have a responsibility to ensure consumers can redeem the rewards they have earned, including coordinating with merchant partners and suppliers. If systemic failures lead to consumers losing points when attempting to redeem them, it could be seen as unfair or deceptive practice.
The Consumer Financial Protection Bureau also introduced a new tool called “Explore Credit Cards” on its official website to help consumers find the best credit card rates between rewards cards and traditional cards. This tool enables consumers to compare over 500 credit cards using fair and comprehensive data to select the most suitable and cost-effective one.
The announcement by the Consumer Financial Protection Bureau comes during the busiest time of the year for shopping and travel leading up to the new year. Credit card issuances often peak seasonally, typically in November and December, as retail sales and promotional activities during the holiday period are more active.