If your mailbox is typical, it's full of attractive-sounding offers from credit card companies offering low- or no-interest deals on purchases and balance transfers. But the Consumer Financial Protection Bureau (CFPB) says some of those offers may not be quite as good as they sound.
It's warning card issuers to be careful they're not using deceptive tactics to lure consumers into signing up, and put them on notice that they must clearly disclose the costs and risks of these promotional offers so consumers understand what they are signing up for.
“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said CFPB Director Richard Cordray. “Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”
The CFPB bulletin highlights concerns around the marketing of credit card interest-rate offers such as balance transfers, deferred-interest offers, and convenience checks.
Under these promotions, consumers are often charged a fee to transfer a balance or make a purchase with their credit card in order to receive a promotional interest rate on that amount for a set period of time. While consumers pay no interest or a low interest rate for balances subject to the promotion, any additional purchases consumers make with the credit card may incur interest charges right away.
The Bureau believes some companies’ marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which they were not charged interest previously. For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.
These marketing tactics specifically impact consumers who enjoy an interest-free “grace period” on their credit card purchases. Consumers who pay off their total credit card balance each month receive a grace period during which they do not have to pay interest on purchases.
When consumers carry their promotional credit card balance past their payment due date, they lose their grace period and are charged interest on all new purchases. The only way for these consumers to avoid interest charges on new purchases made with the credit card is to pay off their whole statement balance, including the promotional balance and the new purchases, by their monthly billing due date.
The CFPB is also publishing consumer tips today about credit card interest-rate promotions and how grace periods work. Tips for consumers who decide to accept a promotional offer include:
· Avoid the interest: Consumers that do not carry a balance can take advantage of promotional rates and avoid unexpected interest if they don’t make new purchases with the card until they pay off the entire balance. To avoid interest charges on new purchases, these consumers should consider paying with cash, debit, or another credit card that doesn’t have a balance.
· Make payments on time to avoid surprise charges: Consumers should be sure to make payments on time. For promotional and deferred-interest balances, consumers should pay off the entire balance before the end of the promotional period.
· Compare the interest rates among credit cards. Consumers that carry a balance on all their credit cards should compare the interest rates among their cards to decide which is the best deal for new purchases. These consumers should also consider paying for new purchases with cash or debit.