Consumer Finance Insights
September 9, 2014

CFPB Warns Credit Card Issuers Against Deceptive Marketing of Promotional APR Offers

On September 3, 2014, the CFPB issued a Bulletin warning credit card issuers about deceptive marketing of promotional annual percentage rate (APR) offers.  According to the CFPB, it has observed solicitations that offer an initial low APR for certain kinds of transactions (such as convenience checks, deferred interest rate purchases, or balance transfers), but fail to clearly convey that purchasers who take advantage of such offers may lose the grace period normally available for other purchases if the consumer fails to pay the entire statement balance in full – including the amount subject to a promotional APR – by the due date.

Many consumers hold cards that offer an interest-free “grace period” during which they will not have to pay interest on amounts charged to their cards in any given monthly billing period if the amounts are paid in full by the due date.  The CFPB determined that in some cases, such cardholders may pay charges in full for regular purchases, but carry the promotional balance beyond the monthly statement due date, and incur unexpected interest charges for doing so because the only way for the cardholder to avoid charges on non-promotional rate purchases made with the card carrying a promotional balance is to pay the entire statement balance.  

In a Press Release accompanying the Bulletin, the CFPB cited its October 2013 CARD Act Report, which found that consumers often did not understand credit card grace periods and promised continued study of various deferred interest rate products.  Both the CFPB’s statement to the media and the Bulletin itself warned that card issuers whose marketing materials did not clearly explain the costs and limitations or their promotional offers (including that promotional interest rate offers may cause consumers to lose the interest-free grace period they normally would receive on other charges) are engaged in in deceptive and abusive marketing practices.  

Part of the CFPB’s continuing review of credit card disclosure practices, the Bulletin is a reminder to card issuers to review their current marketing materials and accompanying disclosures to be sure the total cost of promotional APRs is clear to consumers.


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