Honesty is the best policy when marketing special interest rate promotions, was the message that federal regulars delivered to U.S credit card issuers, believing that some may be engaging in deceptive marketing practices.
The Consumer Financial Protection Bureau (CFPB) took the hardline stance due to concerns that consumers who take advantage of promotions offering zero interest on balance transfers, may open their credit card statements to find a surprise waiting for them, including extra charges, and even unexpected interest on purchases.
“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.”
It’s all about the fine print
These promotions, which are popular with consumers, typically offer zero interest or very low interest rates on balance transfers lasting for anywhere from 6 to 18 months, depending upon the issuer.
According to the bulletin issued by the CFPB, some companies are creating marketing materials that do not clearly spell out the offers details, so key facts may be missed by consumers. For instance, if promotional balances are not paid off in full by the due date, they begin racking up interest on everyday purchases, which may have previously been interest free.
Consumers who receive an interest-free “grace period” on their purchases in return for totally paying down their card are particularly at risk. Many do not realize that when they do a balance transfers, and carry the promotional balance past their due date their grace period is no longer in play, and at this point they begin earning interest on everything. The only way to avoid this is to pay off their entire balance, including the balance transfer, when the payment is due.
Since consumers pay a fee for balance transfer promotions, the new interest charges means that transferring a balance may actually cost them more money in the long run.
The CFPB posted tips on how consumers can protect themselves against unfair practices on their blog.