The CFPB Turns Its Focus To Credit Card Reward Programs

May 22 2024

The Consumer Financial Protection Bureau (CFPB or Bureau) released a new report spotlighting common consumer complaints for credit card rewards programs. The Bureau and its Director, Rohit Chopra, have been focused on payments oversight, including by proposing a rule last Fall that would apply to nonbank entities that provide digital wallets. The new report discusses the relationship between consumers and the providers of reward programs, and it stresses the need for fairness and transparency.

Rewards programs have grown in popularity in recent years, and increased usage raises regulatory risk. In 2023, for example, the CFPB received more than 1,200 complaints involving credit card rewards. The report highlights four recurring issues:

Vague or Hidden Terms & Conditions. A common complaint is that fine-print terms and conditions for rewards do not match the marketing materials. The Bureau determined that consumers are drawn in by promising marketing schemes only to be fooled by “bait and switch” offers like limitations on eligible purchases and promotional bonuses.
Devaluation of Rewards. Consumers complained that issuers and merchants reduce the value of rewards by increasing the redemption requirements. There are obstacles to redeeming the rewards including minimum balances for redemption and modification of benefits from co-brand agreements. Consumers were upset after the terms of co-brand agreements were changed to their detriment shortly after their payment of the annual fee and subsequent refusal by the issuer to pro rate or refund the fee when cancelling the card.
Redemption Issues. Another complaint was customer service or technical problems preventing or delaying the redemption of rewards. Consumers reported being referred back-and-forth from the issuer and co-brand partner, such as an airline, to resolve issues. When some issues were resolved, due to the length of time to reach resolution, sometimes weeks or months, consumers found that the rewards had expired or were otherwise unusable.
Revocation of Earned Rewards. Generally, credit card companies can close an account without notice, and such closures often include the forfeiture of rewards. The Bureau noted the lack of communication from issuers to consumers concerning impending rewards revocation or expiration. Research by the CFPB revealed that most issuers have an expiration policy with respect to rewards, mostly due to inactivity, but such definitions and terms varied.

This report puts issuers and merchants on notice of rewards program concerns the CFPB is monitoring. And after clearing a major hurdle with the Supreme Court’s rejection of a challenge to its funding, the CFPB is likely emboldened. Businesses that offer or participate in rewards programs should review their programs carefully.