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CFPB to Investigate Credit Card Rewards Disclosures

Nov. 27, 2013
Credit Cards
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If you have a credit card that offers a rewards program, such as cash back or airline miles, you’ve probably been confused by how exactly benefits are earned and redeemed. If this is the case, you’re not alone. In fact, the federal government organization responsible for protect consumers from unfair financial practices – the Consumer Financial Protection Bureau (CFPB) – has begun investigating credit card rewards disclosures to be sure that Americans aren’t being taken advantage of by credit card companies.

Lots of competition, lots of rewards

The competition for credit card business has become intense in recent years; with literally hundreds of cards on the market these days, credit card companies are constantly feeling the pressure to up the ante of their rewards programs to attract customers.

And it’s a particular type of customer they’re after: big spenders. People who spend a lot of money with their credit cards tend to be the most profitable for credit card companies. The reason for this is twofold – for one, people who spend a lot on plastic typically generate a high volume of swipe fees that banks charge to merchants. Second, big spenders sometimes carry balances from month to month, which means that interest can be charged on their purchases.

All this means that credit card issuers are on a mission to recruit customers in general, but big spenders in particular, through the use of rewards. And it seems to be working – according to Bloomberg, reporting on news from J.D. Power & Associates, credit card rewards programs are the number one reason consumers pick one card over another.

Complexity leads to confusion

Unfortunately, an upsurge in rewards programs over the years appears to have caused an increased level of complexity in how rewards can be earned and redeemed. According to a 2013 J.D. Power report, only 59% of credit card users surveyed stated that they “completely” understood the rewards program offered by their cards, which is down from 66% in 2012. A full 33% reported that they didn’t know if their card offered a rewards benefit.

All this has led the CFPB to take a closer look at the rewards disclosures provided by credit card companies when new customers sign on to their cards. Although there hasn’t been an increase in consumer complaints to the bureau about credit card rewards scams, the popularity of these programs means that being proactive is key to detecting issues before consumers get burned.

The CARD Act falls short

It may seem like the CARD Act of 2009 would be enough to keep consumers safe from unfair practices by credit card companies, but this is not the case when it comes to rewards.

Although the CARD Act has been successful in reducing the fees that credit card customers are paying and requires that consumers be notified before interest rate hikes take effect, it doesn’t include any regulations related to rewards program disclosures. This has added to the CFPB’s desire to conduct its own investigation.

Protecting yourself

Although the CFPB may eventually force credit card companies to be more clear about their rewards programs, there are steps you can take to increase your understanding of the benefits you’re entitled to right now. For example:

  • Read over the details of your credit card’s rewards program very carefully. This information should be contained in the rewards disclosure statement you received when you got the card.
  • If there’s anything you don’t understand about the rewards program after reading the disclosure, call your credit card company and ask about it. Don’t hang up until you get a very clear answer.
  • Pay attention to the periodic emails you’re probably receiving from your credit card company about additional benefits; many rewards cards offer rotating bonuses that you should be aware of.

The bottom line: credit card rewards programs can be confusing, and regulations to increase the clearness of these perks plans could be on the way. In the meantime, be sure you completely understand your credit card’s benefits so that you can be taking advantage of them!