WASHINGTON The Consumer Financial Protection Bureau issued a warning Wednesday to credit card companies that use deceptive marketing to mask hidden charges within promotional interest rates.
In a bulletin, the agency specifically targets creditors that offer low or zero interest rate promotions without clearly disclosing to the consumer the possibility of interest rate hikes after the promotion has ended or sudden charges that could result from adding new purchases before the total balance is paid off.
"Credit card offers that lure in consumers and then hit them with surprise charges are against the law," said CFPB Director Richard Cordray in a press release. "Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use."
The bulletin follows a report issued in October in which the CFPB estimated that consumers made millions of promotional balance transfers in 2013 and roughly 43% of borrowers with subprime credit scores were eventually hit with a retroactive interest charge. The agency said Thursday that its exams of "large banks and credit card issuers indicate that some companies may be failing to adequately explain the terms of certain interest-rate promotional offers, leaving consumers confused about why they are incurring new interest charges on their purchases."
The bulletin specifically addresses promotional rates on balance transfers, deferred interest rates and convenience checks that are not marketed clearly to consumers.
"Under these promotions, consumers are often charged a fee to transfer a balance or make a purchase with their credit card in order to receive a promotional interest rate on that amount for a set period of time," the CFPB said in the release. "While consumers pay no interest or a low interest rate for balances subject to the promotion, any additional purchases consumers make with the credit card may incur interest charges right away."
The CFPB said some card issuers are not clearly marketing to the consumer that if they transfer a balance to a card because of a zero-interest promotion but then add new purchases without paying off the total balance, they could lose that interest rate "grace period" and face "surprise charges."
"The bureau expects credit card issuers to incorporate into their compliance management systems adequate measures to prevent violation of federal consumer financial laws, including the Dodd-Frank Act's prohibitions on unfair, deceptive, or abusive acts or practices," the bulletin said. "Consequently, credit card issuers are expected to implement internal controls sufficient to ensure that they market promotional APR offers in a manner that limits the risk of statutory or regulatory violations and related consumer harm."