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CFPB hints at crackdown on ‘confusing’ rewards programs

Kelly Dilworth

The pressure is on for credit card issuers to clean up their card rewards programs and simplify the programs’ disclosures, which are often frustratingly opaque.

In a report released Dec. 2, the Consumer Financial Protection hinted that it might soon start cracking down on confusing card rewards programs, which it says could potentially mislead consumers who don’t fully understand the programs’ terms.

“According to our research, over half of all consumers say they select credit cards based on the rewards they provide,” said CFPB Director Richard Cordray in prepared remarks about the report, which also covered debt collection practices, subprime cards, deferred interest promotions and the continuing impact of the Credit CARD Act of 2009. “But the specific terms of rewards programs are often not available to consumers until after they have already applied for the card. Even then, the terms of the rewards tend to be obscured by glossy program guides, which provide only partial information.”

Many rewards program terms are also long and difficult to comprehend, said Cordray, and frequently contain clauses that reserve an issuer’s right to change the rules “at any time and for any reason.”

In the Dec. 2 report, the CFPB also complained that some card issuers provide consumers with too vague a warning about what could happen to their rewards if they disregard their credit cards’ terms. “Issuer policies tend not to offer specifics in this area, noting simply that unspecified violations ‘may’ lead to forfeiture without defining which violations in fact lead to forfeiture,” said the CFPB. “Forfeiture practices are one of the largest drivers of complaints to the Bureau about rewards cards,” it added.

In addition, the CFPB said it’s received numerous complaints about how hard it is for consumers to understand and navigate convoluted or high-maintenance rewards programs — especially when the rewards are tied to rotating bonus categories that cardholders have to opt in to or to specific types of spending that must done at a particular type of store.

For example, in an especially confusing quirk, some rewards cards offer bonus points on special categories such as grocery spending, but if you purchase your groceries at a store that’s not specifically categorized as a grocery store, you might not qualify for the bonus.

Many card programs also have rules buried in their disclosures that limit how many rewards you can earn. Others sharply restrict when and how you can redeem them.

“Our rewards-related focus groups suggested that consumers found earnings rewards to be more challenging than they had initially assumed when acquiring their rewards cards,” said the CFPB in the report. “Consumers may also find the redemption process more complex, opaque or time-consuming than they had assumed.”

A headache to compare
Comparing card rewards programs can also be a pain — especially if you’re trying to maximize your rewards. The CFPB didn’t mention the wide disparity in the value of credit card rewards points. But, in my experience, one of the hardest parts of comparing credit rewards programs is figuring out how much the rewards are actually worth.

For example, some particularly misleading rewards programs will entice consumers with a high rewards rate, such as 3 points for every dollar spent; but if you dig a little deeper and do the math, you’ll find the rewards points are worth far less than comparable cards.

Other cards offer much more generous rewards. But in order to maximize the rewards points’ value, you have to use the points on especially pricey purchases, such as transatlantic flights and luxury hotel stays.

In my case, I got so fed up comparing rewards programs while searching for a third card to add to my wallet that I temporarily gave up altogether. I still plan to get a new rewards card eventually. But the time it takes to carefully evaluate and compare the credit card rewards programs just makes me want to put it off.

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