When it comes to advertising, the Consumer Financial Protection Bureau has its eye on financial institutions. And with the coming holiday season and the spike in advertising that frequently accompanies it, expect the CFPB to be on the lookout for all kinds of false claims, but for one kind in particular. Recently, the CFPB has identified some advertising of credit card promotional rates as deceptive and/or abusive to consumers, and they’ve issued Bulletin 2014-02 to combat this issue.
Specifically, the CFPB is focused on credit card issuers that advertise that consumers can, for a limited time, transfer existing credit card balances and receive a zero percent or very low promotional APR. It sounds like a great deal, but the ads sometimes do not make clear that the consumer will only receive the zero percent or other low interest rate if they pay off all of the transfer balance plus any new charges they make within the grace period.
In other words, consumers often believe that under these offers the balance they transfer will receive the zero percent or other low rate automatically, regardless of whether it’s paid in full within the grace period, and that only new charges need to be paid within the grace period to qualify for the promotional rate during the promotional period.
As a result, the CFPB states that credit card issuers that do not clearly disclose that these promotional rates may come with other contingent costs are engaging in deceptive and/or abusive behavior in their credit card advertising.
Let’s review what those terms mean. A representation, omission, act or practice is deceptive if:
- The representation, omission, act or practice misleads or is likely to mislead the consumer;
- The consumer’s interpretation of the representation, omission, act or practice is reasonable under the circumstances; and
- The misleading representation, omission, act or practice is material.
An abusive act or practice is defined as one that:
- Materially interferes with the ability of the consumer to understand a term or condition of a consumer financial product or service; or
- Takes unreasonable advantage of a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service or a consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service, or a consumer’s reasonable reliance on a covered person to act in his or her interests.
The CFPB has issued this bulletin as a warning that it believes that some of the marketing materials and practices it’s seeing in the industry may fall under one or more of the above definitions.
Keep in mind that Regulation Z requires that you disclose information about any grace periods you offer on or with credit card solicitations, applications, account-opening disclosures, periodic statements and with convenience checks. In addition, the table disclosures provided with solicitations, application, account-opening disclosures and with convenience checks must also include the promotional rate and information about other applicable rates.
However, Regulation Z does not currently require that marketing materials include additional disclosures that would alert consumers that they could lose the benefit of a grace period for new purchases, if they don’t pay off all balances (including any transferred balances) within the grace period. So in order to avoid a potential claim of deceptive or abusive activity if you decided to offer a similar promotional rate/balance transfer option to your members/ customers, the CFPB recommends that you ensure that:
- All solicitations, applications, account-opening materials, and convenience checks comply with the requirements of Regulation Z;
- All marketing materials clearly, prominently, and accurately describe the material costs, conditions, and limitation associated with the offers; and
- All marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.
In short, you may want to review your promotional credit card advertisements to ensure that you aren’t deliberately or unknowingly making any of the prohibited claims mentioned above, because the CFPB will be watching.