CFPB Warns Credit Card Issuers Regarding Offering Promotional APRs

Credit Cards CFPB UDAAP

On September 3, the CFPB published Bulletin 2014-02 warning credit card issuers of the risk of engaging in deceptive or abusive acts and practices in connection with solicitations offering a promotional annual percentage rate (APR). In particular, the bulletin discusses the risk associated with balance transfer solicitations that fail to clearly disclose all material costs of the promotional APR offer, including the failure to disclose that consumers will lose their interest-free grace periods on new purchases if the entire statement balance—including the transferred balance—is not paid in full. The bulletin warns that, depending on the facts and circumstances, card issuers’ solicitations may be considered deceptive and/or abusive if they do not disclose that transferring an outstanding balance may result in additional interest charges for new purchases until a consumer’s grace period is restored by paying in in full. Furthermore, the bulletin notes that while Regulation Z does not require marketing materials to include additional disclosures alerting consumers to the potential effect of accepting a promotional APR offer, some offers may risk being deceptive or abusive even if Regulation Z is not violated. In a press release regarding the bulletin, Director Cordray stated, “[W]e 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.” Finally, the bulletin states that the CFPB expects card issuers to incorporate adequate measures into their compliance management systems in order to prevent violation of Federal consumer financial laws, including the prohibition on deceptive, unfair, or abusive practices. These measures should include steps to ensure that all marketing materials clearly, prominently, and accurately describe the effect of promotional APR offers on the grace period for new purchases.