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CFPB to look at ‘confusing’ card rewards

Kelly Dilworth

If you’re having trouble understanding your credit card rewards program, don’t feel too bad about it. You have a lot of company.

A J.D. Power survey published earlier this year found that 41 percent of rewards cardholders aren’t quite sure how to fully take advantage of their card’s program. (Thirty-three percent, meanwhile, are still fuzzy about what benefits are offered by their card.)

Each card has its own set of rules governing how to use it, and some rewards programs are more convoluted than others. That makes decoding the ins and outs of a particular rewards program difficult for many cardholders — particularly if they’re dealing with rewards that expire after a set period or can only be used at certain times.

To help combat this confusion, the Consumer Financial Protection Bureau is zeroing in on the way rewards programs are marketed and may one day ask issuers to make their rewards programs easier to understand.

In a Nov. 13 email to Bloomberg News, CFPB Director Richard Cordray lamented the “detailed and confusing rules” that some cardholders have to contend with when evaluating their card’s rewards programs, and said the CFPB is taking a closer at those programs to make sure they aren’t unnecessarily flummoxing consumers.

“We will be reviewing whether rewards disclosures are being made in a clear and transparent manner, and we will consider whether additional protections are needed,” wrote Cordray in the email.

This isn’t the first time the CFPB has hinted that it’s unhappy with the way rewards card programs are organized. In an Oct. 1 report evaluating credit card offers after the 2009 CARD Act, the CFPB said that it was concerned with the way rewards card programs are being presented to consumers and said that it was actively considering new regulations for rewards cards.

“As issuers compete more fiercely for high-spend transactors (i.e., consumers with high spending who do not carry an ongoing balance), certain issues and practices relating to rewards offerings and other marketing promotions may become a new area of concern,” wrote CFPB researchers in the report.

Some of the issues the CFPB raised include:

  • Murky sign-up bonuses: Issuers often tout big sign-up bonuses when marketing a new rewards card; but it’s not always clear what exactly you need to do in order to earn that bonus, says the CFPB. 
  • Confusing requirements: Some rewards benefits don’t kick in unless you periodically opt-in to them, buy a certain type of product or visit a specific retailer; but the CFPB says that some card issuers’ redemption requirements often shift with time and may not be disclosed clearly enough to the consumer. 
  • Differing rewards values: It can be hard to make sense of how much a rewards point is worth, says the CFPB, particularly since the rewards value may change. For example, “the value of a ‘point’ may vary based upon the number of points being redeemed,” wrote the CFPB. “In some instances the nominal value of a particular benefit may increase over time, progressively requiring more reward points to access the same benefit.” 
  • Rewards that disappear: Card issuers have different rules about how they handle your rewards when you close your account, pay your bill late or ignore your credit card for a certain period of time. Some issuers, for example, may let you transfer your rewards to another program; others make you forfeit any rewards you don’t use when you close your account. The rules vary widely depending on the card, says the CFPB. So, too, do the costs you incur when you try to reinstate the rewards you earned.

The CFPB hasn’t set a specific timeline for when it will finish scrutinizing card rewards, nor has it formally announced any specific gripes the CFPB feels are definitely worth regulating. However, the bureau has made clear that it is taking its concerns with rewards card programs seriously, and if it finds any evidence that card issuers are deceiving their customers in some way, then new rules are almost certainly on the way.

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