The CFPB announced that it sent letters to “top retail credit card companies” encouraging them to use zero-interest promotions instead of deferred-interest promotions. The CFPB also provided a sample letter and published a new blog on its website for consumers to explain how deferred-interest and zero interest promotions operate and the key differences between them.
In the letter, the CFPB praised the decision of a “major U.S. retailer, in partnership with one of the largest U.S. credit card issuers, to end deferred-interest promotions on its credit card program” and to instead “offer its customers a 0% interest promotion, which is more transparent and carries less risks for consumers.” In its second biennial report on the credit card market issued in December 2015, the CFPB discussed deferred-interest promotion as one of several “areas of concern for consumers.” The CFPB references the 2015 report in its letter, particularly the CFPB’s conclusion in the report that its analysis of deferred-interest promotions called into question whether consumers fully understand how such promotions operate.
The CFPB concludes the letter with the observation that “it is important that every consumer fully understands the terms and true costs of promotional financing and is able to confidently make the best choice for his or her unique financial situation. In recent years, attention to such responsible lending practices has greatly improved consumer trust and satisfaction with the credit card market.”
The views expressed by the CFPB in the letter regarding the risks created by deferred-interest promotions signal increased CFPB scrutiny of such promotions. Moreover, retailers and card issuers should be mindful of the fact that the CFPB’s first biennial report issued in 2013 seemed to indicate that the CFPB equates the failure to benefit from a deferred-interest promotion with a lack of understanding as to how the program operates. As a result, retailers and card issuers who continue to offer deferred-interest promotions should carefully review their policies and procedures, promotional materials, and program disclosures and agreements with counsel.