The Consumer Financial Protection Bureau (CFPB) has issued a warning to credit card issuers about deceptive practices in their rewards programs. Card companies may be violating federal law if they devalue rewards points, fail to deliver promised benefits, or hide conditions in the fine print of card agreements.
This warning follows a public hearing hosted by the CFPB and the U.S. Department of Transportation in May, which addressed challenges consumers are experiencing with airline and credit card rewards programs. Consumers have reported difficulties in redeeming rewards or having their valued reduced due to policy changes by program partners.
Three Danger Areas
The new circular highlights three potentially deceptive practices by issuers.
First, it’s currently legal for issuers to change the terms of the points their cardholders have earned. For example, the fine print on JP Morgan Chase’s popular Chase Sapphire Preferred Card states that they are only required to give the cardholder 30 days’ notice before reducing the value of points. The CFPB aims to make this practice illegal. In its circular, CFPB notes that altering the value of a customer’s accrued points after they are earned is unfair and essentially amounts to a bait-and-switch tactic.
Secondly, the CFPB warns against hiding the conditions for earning or keeping rewards.Fine print disclaimers or terms buried in contracts sometimes contradict promotional language used to advertise the rewards consumers can earn. Additionally, companies may unlawfully use fine print to cancel rewards that consumers have already earned.
Finally, companies managing rewards programs will be held accountable for ensuring that consumers can redeem the rewards they have earned, including coordinating with merchant partners and vendors. There have been reports of consumers attempting to make purchases through a travel partner system, like an airline, only to run into technical issues that result in lost points, leaving the user no recourse to recover them.
“Points are really their own monetary system at this point, negotiated with partner vendors and issuer rewards programs,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research. “Consumers should be evaluating how points are converted into things like miles and cash back that are described in the terms and conditions upon signup. And as with any credit card, if the consumer is revolving debt, the rewards are not going to be very helpful for their financial situation.”
Pricey Violations
Deceptive practices involving rewards points have been a concern for over a decade. In 2012, American Express was ordered to refund $85 million after misleading consumers who expected a $300 bonus for signing up for its Blue Sky credit card program. More recently, in 2023, the CFPB fined Bank of America more than $100 million for withholding cash and points rewards from certain customers.
“Issuers should always be making sure that their marketing messaging and offers align with the actual offer,” said Danner. “Try to leave as little room for misinterpretation as possible.”
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