Maryland Legal Alert for Financial Services
CFPB Addresses Potential Compliance Gaps in Credit Card Rewards Programs
The Consumer Financial Protection Bureau (CFPB) has recently released a circular to law enforcement agencies addressing potential violations of the law by credit card issuers administering reward programs. CFPB highlighted that misleading or unfair practices, such as unilaterally changing reward values (similar to bait-and-switch tactics), using vague terms or fine print to revoke or cancel rewards, or failing to ensure redemption systems work properly, can be considered violations of consumer protection laws.
The CFPB emphasized that these violations may occur even when the conduct in question is attributable to third parties, such as merchant partners, stressing the shared responsibility of all parties involved in rewards programs. Overall, the circular reinforces that credit card rewards programs must be designed, marketed, and administered transparently and fairly to comply with federal consumer financial law. In addition to the circular, the CFPB also released research highlighting the high costs and consumer complaints associated with retail credit cards and launched a new tool, Explore Credit Cards, to help consumers find credit cards with lower interest rates and better terms.
Practice Pointer: Credit card issuers operating rewards programs should prioritize transparency, fairness, and compliance to meet regulatory expectations. This includes maintaining the advertised value of rewards, ensuring redemption processes are straightforward and accessible, and clearly disclosing all terms and conditions of the reward program. Additionally, issuers should conduct proactive audits—both internally and through third parties—to identify and address any compliance risks or consumer issues.
For more information, contact Christopher R. Rahl or Tamia J. Morris.