WASHINGTON — The Consumer Financial Protection Bureau has issued a circular that states some credit card companies operating rewards programs may be breaking the law, including by illegally devaluing rewards points and airline miles.
The CFPB also published new research finding that retail credit cards—which typically offer store-specific rewards and loyalty programs—charge significantly higher interest rates than traditional cards.
The CFPB further launched a new tool, Explore Credit Cards, to help consumers find the best credit card rates across both rewards cards and traditional cards.
“This first-of-its-kind tool enables consumers to compare more than 500 credit cards using unbiased, comprehensive data,” the CFPB said.
“Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they’ve earned,” said CFPB Director Rohit Chopra. “When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them. The CFPB is taking aim at bait-and-switch tactics and promoting more competition in credit card markets to protect consumers and give people more choice.”
CFPB Moves To Stop Credit Card Rewards Program Schemes
The circular released by the CFPB addresses practices in credit card rewards programs, which companies increasingly use to encourage consumers to apply for and use specific cards. Since 2019, more than 90% of general-purpose credit card spending occurred on rewards cards, the CFPB said.
“In today’s marketplace, credit card issuers often promise cash, points, and miles sign-up bonuses to consumers, as well as rewards for certain types of spending. Consumers have reported to the CFPB that these rewards can be difficult to redeem or are sometimes devalued by policy changes by partners,” the CFPB said.
In May 2024, the CFPB and the U.S. Department of Transportation hosted a public hearing about challenges consumers are experiencing and the lack of competition in airline and credit card rewards programs. In conjunction with the hearing, the CFPB issued a report finding consumers encounter numerous problems with credit card rewards programs.
The circular warns that companies may violate federal law when they:
- Devalue earned rewards: Consumers make decisions on whether to open or use a credit card based on the value of card benefits and rewards conveyed by a company’s advertising and other communications. If the company later deflates the value of a customer’s accrued awards, this may be an unfair or deceptive practice resembling a bait-and-switch scheme, the CFPB said.
- Hide the conditions for earning or keeping rewards: Fine print disclaimers or vague term buried in a contract may unlawfully conflict with prominent promotional language advertising the rewards consumers can earn. Companies may also illegally rely on fine print to cancel valuable rewards that consumers have already earned. If consumers’ receipt of rewards is revoked, canceled, or prevented based on buried or vague conditions, that may be an unfair or deceptive act or practice, the CFPB said.
- Fail to deliver promised benefits: Companies operating rewards programs are responsible for ensuring consumers can redeem the rewards they have earned, including coordinating with merchant partners and vendors. If system failures result in consumers losing points when attempting to redeem, this may be considered an unfair or deceptive practice, the CFPB explained.
The CFPB noted it has taken action against issuers such as American Express and Bank of America for illegal practices related to credit card rewards programs.
“The CFPB will continue to monitor these programs and will take necessary action on these issues as appropriate,” the agency said.
New Market Research
As part of its work to monitor the U.S. credit card market, the CFPB published new research identifying key findings about retail credit cards. Retail credit cards represent a significant part of the consumer credit card market, and one out of every four credit card accounts is a private label retail card, with over 160 million open accounts in 2024. The CFPB found that retail cards—more than 80% of which are issued by four large banks—are more expensive than general purpose cards, with 90% of retail cards reporting a maximum annual percentage rate (APR) above 30%, compared to only 38% of non-retail general purpose cards in one CFPB survey sample.
In December 2024, private label cards for the top retailers had an average APR of 32.66% for new accounts. In complaints submitted to the CFPB, consumers have also reported experiencing aggressive sales tactics at the point of sale, inability to redeem promotions, and frustration with paper statement fees and late fees. Private label store cards make up a disproportionate amount of late fee volume compared to their share of account volume, according to the CFPB’s analysis.
The CFPB also launched Explore Credit Cards, a tool that helps people make apples-to-apples comparisons about options in the credit card market, using open data.
“Unlike existing comparison sites that may feature a limited selection of cards with high annual fees and APRs, rely on kickback schemes, and accept money to promote cards, the CFPB’s new tool provides unbiased, comprehensive data for more than 500 cards, and the data is available to everyone,” the CFPB said.