The CFPB has issued a bulletin warning credit card issuers that offer certain promotional APRs of the risk that they may be engaging in deceptive and/or abusive acts or practices when making solicitations for such offers even if such solicitations are in compliance with Regulation Z.
The bulletin focuses on promotional offers that allow consumers to transfer a credit card balance or make a purchase that will be subject to a zero or low APR for a stated time period. The CFPB indicates that the offers covered by the bulletin include, but are not limited to, convenience checks, deferred interest/promotional interest rate purchases, and balance transfers.
According to the bulletin, “CFPB advisory experience has observed that some card issuers do not adequately convey in their marketing materials that a consumer who accepts such a promotional offer will lose his grace period on new purchases if he does not pay the entire statement balance, including the total amount subject to the promotional APR, by the payment due date.” The CFPB describes “affected consumers” as those “who maintain a grace period on purchases by paying their full statement balance by the payment due date each month, accept the promotional offer, and then continue to make purchases using the credit card.”
The bulletin warns that issuers risk engaging in deceptive advertising practices by giving affected consumers the impression that the only cost of obtaining the promotional APR will be the transaction fee set forth in the tabular Reg Z disclosure or the promotional APR will be the only rate at which the consumer will incur interest charges. The CFPB states that it has found that “one or more card issuers” did not adequately convey that a promotional offer came with an additional contingent cost to affected consumers—namely that the consumer must repay the entire balance (both the promotional balance and any new purchase balance) by the statement due date to avoid paying interest on new purchases. According to the CFPB, “the absence of clear language [about the loss of the grace period for affected consumers] placed in a prominent location” could cause reasonable consumers to be misled about card costs.
Issuers are also warned in the bulletin that they risk engaging in an abusive act or practice by failing to make reasonable efforts in their marketing materials to alert consumers to the relationship between the grace period on new purchases and accepting a promotional offer. The CFPB indicates that by failing to provide such information, an issuer could be deemed to have taken unreasonable advantage of consumers who do not understand that the grace period for new purchases is conditioned on full payment of the promotional balance and exploited that lack of understanding to impose additional costs.
While acknowledging in the bulletin that Reg Z does not require additional disclosures alerting consumers to the effect of accepting a promotional offer on the loss of the grace period on new purchases, the CFPB indicates that it expects issuers “to incorporate into their compliance management systems adequate measures to prevent violations of Federal consumer financial laws, including the Dodd-Frank Act’s [UDAAP prohibition].” According to the CFPB, those steps should include (but are not limited to) ensuring not only Reg Z compliance but also clearly, prominently, and accurately describing in all marketing materials:
- the material costs, conditions and limitations associated with promotional APR offers, and
- the effect of promotional APR offers on the grace period for new purchases.