The Consumer Financial Protection Bureau (CFPB) has issued a warning to credit card companies about deceptive practices that harm consumers, especially during the holiday shopping season. The agency has accused some issuers of manipulating rewards programs, devaluing points or miles, and creating unnecessary obstacles for consumers attempting to redeem their earned rewards. These practices, often buried in fine print, have prompted the CFPB to launch new initiatives to protect consumers and enhance transparency.
CFPB Director Rohit Chopra expressed concerns about these tactics, stating, "Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they've earned. When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them." The agency's critique extends beyond rewards manipulation, targeting high-interest rates and excessive fees on retail credit cards that disproportionately burden consumers.
To address these issues, the CFPB has introduced the Explore Credit Cards tool, a platform that allows consumers to compare over 500 credit card options based on interest rates, fees, and rewards offerings. This tool is intended to provide greater transparency and enable consumers to make informed financial decisions. By leveraging open data, the tool also aims to foster competition, giving smaller issuers a fair chance to showcase more consumer-friendly options.
The agency's data highlights stark disparities in credit card costs. The 25 largest issuers typically charge interest rates 8 to 10 percentage points higher than smaller banks and credit unions, resulting in average annual savings of $400 to $500 for consumers who opt for the latter. Retail credit cards, however, pose a unique challenge, with 90% reporting maximum APRs exceeding 30%, a figure that dwarfs the rates on general-purpose cards. Some private-label cards enforce fixed APRs, charging all users the same steep rates regardless of creditworthiness. In December, the average APR for private-label cards offered by major retailers reached 32.66%, a concerning trend that underscores the financial risks for consumers.
Profit-sharing agreements between retailers and card issuers have further fueled aggressive marketing of high-cost credit cards. These arrangements incentivize practices that prioritize retailer profits over consumer welfare. The CFPB has also cautioned that arbitrary devaluation or cancellation of rewards could violate federal laws prohibiting unfair, deceptive, or abusive practices. The agency has distributed policy circulars to enforcement bodies across the country to ensure compliance and accountability.
As the CFPB works to protect consumers, it faces potential changes in direction under the incoming administration. President-elect Donald Trump has yet to appoint a new director for the agency, but some of his allies, including industrialist Elon Musk, have called for its abolition. Republican lawmakers have also urged regulatory agencies to halt new initiatives until Trump assumes office, a request the CFPB has so far ignored.
The CFPB's actions reflect a commitment to safeguarding consumer rights in a landscape marked by high borrowing costs and inflation. Rewards cards have become a significant aspect of financial planning for many Americans, accounting for 75% of all general-purpose credit cards in 2022. The Explore Credit Cards tool is a step toward ensuring transparency and fairness, but its effectiveness will depend on the participation of credit card issuers and the agency's ability to enforce compliance.
Retail credit cards remain a focal point of concern due to their aggressive marketing during peak shopping seasons and their potential to exploit consumers through excessive fees and restrictive terms. The CFPB's initiatives aim to curb such practices, but long-term success will require continued oversight and collaboration with other enforcement bodies.
