CFPB criticizes credit card rewards programs

The news: Consumers are frustrated with credit card rewards programs, the Consumer Financial Protection Bureau (CFPB) alleged in a report. The CFPB said it will monitor credit card rewards programs and take action as appropriate.

  • Cardholders with revolving balances often pay more in interest and fees than they get back on rewards, the CFPB said.
  • And co-brand cards have made rewards programs even more complex.

The CFPB and the Department of Transportation (DOT) followed up the report release with a joint hearing on airline rewards credit cards.

What else does the report allege?

  • Vague or hidden conditions keep consumers from receiving rewards. Marketing materials mislead consumers and do not match requirements detailed in the fine print of rewards programs’ terms and conditions.
  • Rewards get devalued. Credit card issuers and their partners reduce the value of rewards already earned by increasing the amount needed for redemption.
  • Redemption issues block or delay earned benefits. The report said customer service issues and technical glitches prevent cardholders from redeeming their rewards.
  • Earned rewards get revoked. Consumers lose their rewards when they close their accounts, and some rewards expire without prior communication.

The rebuttal: This report and the public hearing were immediately criticized by credit card issuers.

  • The American Bankers Association (ABA) said it was “yet another example of the CFPB putting politics over policy to the detriment of the very consumers it is charged with protecting.”
  • The ABA also argued that the US credit card market is highly competitive, giving consumers thousands of rewards programs to choose from.

The takeaway: It is unclear if any action will occur as a result of the CFPB’s continued monitoring.

But given the importance consumers place on credit card rewards, actions that are too stringent could become a large stumbling block for issuers. The top reason for switching card providers is to find a better rewards program, according to JD Power.

First Published on May 10, 2024

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