In early September, the Consumer Financial Protection Bureau (CFPB) issued a bulletin (No. 2014-02) to inform credit card issuers of the risk of engaging in deceptive and/or abusive acts and practices regarding solicitations that offer promotional rates.
The bulletin highlights the bureau’s concern about recent marketing trends for certain credit card interest-rate offers such as convenience checks, deferred interest-rate/ promotional interest-rate purchases, and balance transfers.
Many credit card issuers periodically offer consumers the opportunity to transfer credit card balances or make purchases at low or 0% interest rates for a certain period of time. These offers often are marketed as a way to save money by paying off a higher annual percentage rate (APR) account with another card issuer.
But some marketing materials fail to adequately explain the terms of these promotional offers, and give the impression that the only cost of obtaining the promotional interest rate is the transaction fee for the use of the convenience check.
Many such offers also do not clearly disclose that a consumer could lose a grace period on new purchases if the entire account balance, including the amount subject to the low promotional APR, is not paid in full by the end of the grace period.
Even if the loss of the grace period is disclosed, it must be prominently located in the marketing materials, and it must clearly explain the full terms, risks, and potential costs of the promotional offer.
Many credit card issuers offer consumers a grace period on new purchases that typically run from 10 to 21 days from the end of each billing cycle. Generally, if the consumer fails to pay the entire account balance by the end of the grace period, the remaining balance is subject to interest calculated from the date the purchase transaction occurred.
In most cases, the consumer will lose the grace period in the current and future billing cycles for new purchases until the entire balance is paid in full. Regulation Z requires the disclosure of information about grace periods:
• On or with solicitations or applications to open a credit card account;
• At account opening;
• On periodic statements; and
• With checks that can be used to access a credit card account.
These disclosures should inform consumers of the length of the grace period and the time at which finance charges will begin to accrue.
In the previous four situations, Reg Z requires the disclosures to be provided in the form of a table. In the case of convenience checks, the tabular disclosures must also include information about applicable interest rates and the amount of any transaction fee for using the checks.
But the CFPB is concerned that some marketing materials are deceptive, misleading, or abusive in violation of the Dodd-Frank Act, even if they comply with Reg Z.
The bureau believes such solicitations are deceptive or misleading when they don’t clearly disclose that a consumer could lose the grace period on new purchases if he or she pays less than the full account balance, including the amount subject to the promotional APR, by the end of the grace period.
The CFPB expects card issuers to implement internal controls to prevent violations of consumer financial laws, and to ensure they market promotional APR offers in a manner that limits the risk of statutory or regulatory violations and related consumer harm.
All solicitations, applications, account-opening materials, and convenience checks should comply with Reg Z. They also must clearly, prominently, and accurately describe the material costs, conditions, and limitations associated with the promotional offers and grace period for new purchases.
MICHAEL McLAIN is CUNA’s assistant general counsel for compliance. Contact him at 608-231-4185 or at firstname.lastname@example.org.