By: Linda L. Goodman
The Consumer Financial Protection Bureau (“CFPB”) has sent out a warning to credit card companies that marketing false interest-rate promotions is now on their target list for enforcement actions. The CFPB issued a bulletin that some companies luring in consumers with offers of zero or low interest for a specific purchase or balances transferred from another credit card, and then hitting consumers with surprise interest charges is about to become the subject of targeted investigations. The bulletin released on September 5th puts credit card issuers and their marketers on notice that the costs and risks of these promotional offers must be clearly disclosed so consumers understand what they are signing up for.
“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said CFPB Director, Richard Cordray. “Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”
The CFPB bulletin highlights concerns around the marketing of credit card interest-rate offers such as balance transfers, deferred-interest offers, and convenience checks. Under these promotions, consumers are often charged a fee to transfer a balance or make a purchase with their credit card in order to receive a promotional interest rate on that amount for a set period of time. While consumers pay no interest or a low interest rate for balances subject to the promotion, any additional purchases consumers make with the credit card may incur interest charges right away and that fact must be clearly and conspicuously disclosed to the consumer in the promotional material.
The Bureau claims that current marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected and often high interest charges on routine purchases for which they were not previously charged interest. For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.
These marketing tactics specifically impact consumers who enjoy an interest-free “grace period” on their credit card purchases. Thus, credit card companies and their marketing partners must inform consumers that when they carry their promotional credit card balance past their payment due date, they lose their grace period and are charged interest on all new purchases. They must further disclose that the only way for these consumers to avoid interest charges on new purchases made with this credit card is to pay off their entire statement balance, including the promotional balance and the new purchases, by their monthly billing due date.
The Bureau’s bulletin explains that issuers whose marketing materials fail to convey that promotional interest rate offers may cause consumers to lose the interest-free grace period and rack up unexpected fees, risk formal investigation and actions by the CFPB for engaging in deceptive and abusive marketing practices. In the bulletin, the CFPB stresses that it expects credit card issuers to fulfill their legal obligations by clearly communicating costs, conditions, and limitations associated with promotional offers.
So remember that when the CFPB or the FTC issues a bulletin – wake up! Because they are watching you and we will be seeing formal investigations and actions by the FTC or CFPB by next year if these disclosures are not made.
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This article is a publication of The Goodman Law Firm and is intended to provide information on recent legal developments. This article does not create an attorney-client relationship, nor should it be construed as legal advice or an opinion on specific situations. This may constitute “Attorney Advertising” under the Rules of Professional Conduct and under the law of other jurisdictions.
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