Credit cards

The Consumer Financial Protection Bureau has turned its attention to credit card rewards, which some consumers say are less rewarding these days.

In a policy circular, the CFPB warned that credit card lenders that water down or even cancel their rewards may be in violation of the law.

There are many different types of credit card rewards. Travel cards generally offer rewards based on miles that can be used to pay for future travel. But among the most popular rewards is cash back, with the lender giving the consumer anywhere from 1% to 5% of their purchases.

While cash-back rewards are fairly straightforward, travel rewards can be a little vague.

The CFPB said many consumers apply for cards based on the specific rewards they offer. The bureau says current law prohibits unfair, deceptive and abusive practices in administering rewards. Currently, the bureau says nearly 75% of credit cards offer some type of reward.

Putting a price on rewards

As ConsumerAffairs reported in 2023, credit card rewards are not what they used to be. At the time, hoteliers Marriott, Hilton, and Radisson points were valued at less than a penny while others like Hyatt valued theirs at 1.7 cents each. 

The Points Guy, a travel rewards website, publishes a monthly valuation of credit card travel rewards. In its December valuation, it breaks it down this way:

As sports gambling continues to expand across the United States, with online sports betting now legal in 38 states, consumers are increasingly encountering unexpected financial pitfalls, especially if they are putting their wagers on a credit card.

Last year alone, nearly $120 billion was wagered on sports, but many bettors are facing steep "cash advance" fees when using credit cards for these transactions. The Consumer Financial Protection Bureau (CFPB) has highlighted the financial implications of using credit cards for sports betting, showing that lenders often treat these transactions as cash advances, leading to significant fees and interest charges.

In a recent analysis, the CFPB examined credit card agreements from major issuers, consumer complaints, and data from states like Kansas and Ohio, where sports betting was recently legalized. 

The findings indicate that most credit card companies, including Chase, Discover, and American Express, classify online gambling transactions as cash advances. This classification triggers high fees and interest rates, which can catch consumers off guard.

Cash advance fees are not cheap

Cash advances typically incur fees that are either a flat rate or a percentage of the transaction, whichever is greater. For example, a $20 sports wager could incur the same $10 fee as a $200 cash advance withdrawal from an ATM.

Additionally, cash advances begin accruing interest immediately at rates often around 30%, significantly higher than regular purchase rates. This means that even small bets can quickly become costly, with fees and interest accumulating rapidly.

The CFPB's analysis of credit card use in Kansas and Ohio showed a spike in cash advance fees following the legalization of sports betting. The Bureau suggests that many consumers are unaware of the financial consequences of using credit cards for gambling, as disclosures about these fees are often unclear or inconsistent. Complaints from cardholders indicate a lack of transparency from both sportsbooks and credit card issuers, leading to confusion and unexpected charges.

Also, you could lose

And of course, the bettor could lose. They don’t lose their own money, they lose money they don’t have, but will have to pay back, along with the fees.

To their credit, not all credit cards allow sports betting. Some issuers, like Bank of America and Wells Fargo, state they "may" decline internet gambling transactions, relying on merchant categorizations set by networks like Visa and Mastercard. 

However, mobile sportsbooks continue to accept credit cards, with a significant portion of bettors preferring this payment method.

The CFPB said its findings underscore the need for greater transparency and consumer awareness regarding the financial implications of using credit cards for sports betting. As the industry grows, both regulators and consumers must navigate the complex landscape of fees and interest rates to avoid unexpected financial burdens.

An unfortunate fact of life during the holidays is that millions of consumers add to their credit card balances. They may have every intention of paying them off but all to often those charges are still on the account when the next holiday season rolls around.

A  new study by LendingClub Corporation documents the problem, showing that a significant portion of Americans find themselves ensnared in unintentional credit card debt, leading to financial instability and mental distress. 

Despite initial intentions to use credit cards for convenience, credit building, or rewards, nearly half of cardholders end up carrying a balance, often unaware of the high interest rates they are paying.

The research highlights another troubling trend: many consumers do not view credit cards as loans, which leads them to overlook interest rates and terms. This oversight has resulted in 47.3% of Americans accumulating revolving credit card debt, exacerbated by inflation and rising living costs, particularly in food and groceries.

Conflicting realities

Part of the problem may be consumers find themselves in conflicting realities. Nearly 66% of Americans say they can manage their finances without credit cards, 60.3% use them weekly. This dependency can lead to significant financial burdens if balances are not paid in full each month. Nearly 27% of Americans dedicate as much as 40% of their paycheck to credit card debt, a cycle that is difficult to escape.

"No one intends to carry credit card debt, and that's part of the problem," said Mark Elliot, chief customer officer at LendingClub. 

"Cards are great for convenience, to build credit, or to earn rewards, but if you use them as a loan, you need to know how to pay down that high-interest loan as quickly as possible. If you can't, your debt can grow exponentially and you can find yourself on a hamster wheel of credit card debt. Once you're on that wheel, it can be really hard to get off, and that's why credit cards are so lucrative for issuers."

Emotional toll

The emotional toll of this debt is profound, with 75% of Americans frequently thinking about their debt and 40% experiencing negative emotions such as anxiety and frustration. 

Managing credit card debt can be complicated by having multiple balances, fluctuating interest rates, and varying payment schedules. Despite efforts to manage these debts, many Americans lack effective tools, with 22% indicating they lack proper monitoring resources and 28.7% seeking advice from informal sources like family or social media.

Strategies such as the debt snowball or avalanche methods are common but can be slow and costly due to interest charges. Only 10.4% of respondents opt for consolidating debt into a personal loan, which could offer lower interest rates and a structured repayment plan.

As the holiday season approaches, Elliot advises consumers to monitor their credit card debt and plan for repayment.