This week, the Consumer Financial Protection Bureau (CFPB or Bureau) published an Issue Spotlight focusing on consumer complaints relating to credit card rewards programs. The report notes that credit card companies often focus marketing efforts on rewards, like cash back and travel, instead of on interest rates and fees. However, the CFPB has previously reported that consumers who carry debt from month to month earn just 27% of rewards at major credit card companies, while paying 94% of the interest and fees that those companies charged. In its analysis of several hundred complaints relating to these rewards programs, the Bureau identified four recurring themes: 1) vague or hidden promotional conditions; 2) devalued rewards; 3) customer service issues that delay or block reward redemption; and 4) issuers unilaterally revoking reward balances.

Vague or Hidden Conditions

The CFPB highlighted concerns about discrepancies between marketing materials and the actual terms and conditions of rewards programs. “Consumers described applying for a card based on a more rewarding offer but later receiving an inferior promotion,” i.e., “bait and switch.” Other consumers complained about hidden or vague conditions, such as which purchases count towards spending minimums for promotional bonuses.

Devalued Rewards

Another area of concern is the devaluation of rewards. For example, issuers may reduce the value of rewards by increasing the number of points or miles needed for specific redemptions. Consumers also observe that card issuers do not protect them from rewards program partner decisions to remove benefits from rewards programs or increase requirements for achieving status. (This assumes, of course, that the card issuers could exert this kind of control over the merchant partners — more on that below).

Redemption Processes

Consumers have reported issues with redeeming rewards due to customer service or technology problems. For example, consumers described customer service that was unhelpful and unable to quickly resolve rewards problems. Others claimed it could take upwards of two to three months to fix a given problem. On the technology end, consumers reported being unable to transfer their rewards when the redemption portal was down for maintenance for weeks.

Revocation Policies

Lastly, the CFPB highlighted concerns about the revocation of earned rewards. Issuers can generally close an account without notice, and the terms of some rewards programs indicate that the consumer forfeits their rewards in this situation. (This also mirrors the concern that a recently-effective New York credit card rewards law attempts to address, discussed here). Consumers have also complained about companies that do not adequately communicate impending rewards expiration.

The CFPB concluded its Issue Spotlight by warning credit card companies about complying with consumer financial protection laws with regard to their rewards programs. The Bureau noted that it has taken action against credit card issuers for engaging in what it has deemed to be unfair, deceptive, or abusive acts or practices related to rewards programs (but, again, more on that below). “Federal consumer financial protection laws apply to rewards programs offered in connection with credit cards, and the CFPB will continue to monitor credit card rewards programs and work together with governmental partners to take necessary action on these issues where appropriate.”

Our Take:

The CFPB has written publicly about credit card rewards programs before. In its CARD Act Report in 2013, the Bureau raised issues with issuers’ disclosures in connection with rewards programs. This prompted many issuers to review the structure and disclosures associated with their rewards programs, but we did not see significant CFPB scrutiny of rewards programs in the aftermath of this Report. Again in the 2015 CARD Act Report, the CFPB returned to a discussion of rewards programs, raising many of the same concerns in today’s Issue Spotlight. But, again, there was very little in the way of supervisory or enforcement activity related to rewards programs. Now, we see the CFPB repeating these same themes, which raises the question of whether there will be more activity “on the ground” this time with respect to rewards programs. We will be watching to see if that occurs, but in the meantime, we believe it is prudent for card issuers to review their rewards program structures, disclosures and agreements with their merchant partners, and to analyze their rewards-related complaints, to see if any changes need to be made to protect those programs from the possibility of the heightened regulatory scrutiny that the CFPB has been signaling since 2013.