Financial Watchdog Puts Focus on Credit Card Promotions
This week, the Consumer Financial Protection Bureau warned the banking industry about the fine print in credit card promotions that may show such deals to be worse than they seem. The industry, which has seen a large drop in profits from fees in recent years, maintains that it is staying transparent.
The Consumer Financial Protection Bureau (CFPB) is putting the fine print under its microscope.
In an alert released this week [PDF], the federal watchdog agency cautioned credit card companies about “the risk of engaging in deceptive and/or abusive acts and practices” tied to promotions that offer a low annual percentage rate (APR) for a certain period of time. The alert particularly took issue with promotions that fail to tell consumers that the full balance of the card must be paid each month to take advantage of the discounted rate.
“Without a grace period, you will have to pay interest on new purchases from the date you make them,” CFPB’s Dan Rutherford wrote in a recent blog post. “Carrying a promotional balance can cause you to lose your grace period or make it harder for you to get it back. This is why accepting promotional balance offers can cost you more than you expect.”
When certain transactions, such as balance transfers, are involved, this may prove costlier than staying with the original card.
The American Bankers Association says the banking industry is doing its best to stick to the letter of the law on disclosures.
“Providing clear and transparent disclosures so our customers are fully informed is one of our industry’s top priorities,” ABA spokeswoman Nessa Feddis said in a statement in response to the bureau’s comments. “As the CFPB points out, federal regulations require—and banks ensure—that consumers receive four highlighted notices indicating they will lose the grace period on new purchases if they don’t pay their balance in full. This is true whether that balance is made up of purchases, cash advances, or balance transfers.”
Fee Pressures Rise
The CFPB warning comes at a time when the banking industry is under more pressure regarding fees, which have traditionally helped boost banks’ bottom lines.
The Wall Street Journal reported this week [subscription] that commercial banks saw a 21 percent decline in fees between 2009, when the levels peaked, and 2013.
Since then, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created the CFPB, and new regulations have changed the ways fees can be charged. Meanwhile, consumers’ banking habits have changed, with mobile banking, for example, helping consumers avoid fees.
This has led some banks to focus less on overdraft fees, for example, though they still have their benefits, according to Consumer Bankers Association President and CEO Richard Hunt.
New rules on overdraft fees “hurt the consumer more than the banks,” Hunt told the WSJ. “We’re always upfront with the consumer and we’re completely transparent. Because of this jobless recovery people live paycheck to paycheck and this can be a real service.”