The Consumer Financial Protection Bureau (“CFPB”) recently issued a bulletin alerting credit card companies that they may be at risk of breaking the law as a result of the way they market promotional rates. Specifically, credit card issuers may be at risk of engaging in deceptive and/or abusive acts and practices in connection with solicitations that offer a promotional annual percentage rate (“APR”) on a particular transaction over a defined period of time. These transactions include, but are not limited to, convenience checks, deferred interest/promotional interest rate purchases, and balance transfers. The CFPB’s areas of concern are as follows:
- Risk of Deceptive Advertising Practices: Card issuers often market promotional offers as an opportunity for the consumer to save money. The misimpression conveyed in the promotional materials is that the only cost of obtaining the promotional interest rate is the one-time transaction fee. Credit card issuers fail to correct that misimpression by failing to provide clear and prominent information about the cost of new purchases due to the loss of the “grace period.” Said conduct may constitute a deceptive advertising practice in violation of the Dodd-Frank Act.
- Risk of Abusive Practices: Similarly, credit card issuers may be at risk of engaging in an abusive practice if they fail to provide adequate information alerting consumers that they will be unable to maintain a grace period on new purchases if they do not repay their entire balance, including any promotional balance, by the statement due date. Credit card issuers may take unreasonable advantage of consumers by failing to adequately inform them of these conditions and by exploiting their lack of understanding to impose additional costs. Said conduct may constitute an abusive practice in violation of the Dodd-Frank Act.
The CFPB makes clear that it expects credit card issuers to implement internal controls sufficient to ensure the marketing of promotional APR offers in a manner that limits the risk of statutory or regulatory violations and related consumer harm by ensuring that:
- All solicitations, applications, account-opening materials, and convenience checks comply with the requirements of Regulation Z;
- All marketing materials clearly, prominently, and accurately describe the material costs, conditions, and limitations associated with the offers; and
- All marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.
Additional guidance on CFPB’s expectations regarding unfair, deceptive, or abusive marketing practices is available on the CFPB webpage.