CFPB Circular 2024–07 titled, ‘‘Design, marketing, and administration of credit card rewards programs."

 The Consumer Financial Protection Bureau (Bureau or CFPB) has issued Consumer Financial Protection Circular 2024–07 titled, ‘‘Design, marketing, and administration of credit card rewards programs.’’ In this circular, the CFPB responds to the question, ‘‘Can credit card issuers violate the law if they or their rewards partners devalue earned rewards or otherwise inhibit consumers from obtaining or redeeming promised rewards?’’  

Summary of CFPB Circular 2024–07 on Credit Card Rewards Programs

The CFPB's Consumer Financial Protection Circular 2024–07 addresses whether credit card issuers can violate federal consumer protection laws when they or their partners devalue rewards or make it harder for consumers to redeem them. The circular concludes that such practices may constitute unfair, deceptive, or abusive acts or practices (UDAAP) under the Consumer Financial Protection Act (CFPA).

Key Points:

Prohibited Practices:

Devaluation of Rewards: Credit card issuers may violate the law if they reduce the redemption value of already-earned rewards without justification. This could be considered deceptive or akin to a "bait-and-switch" scheme.

Hidden or Vague Conditions: Practices such as revoking rewards based on unclear terms or conditions hidden in fine print can mislead consumers. Examples include vague terms like "gaming" or "abuse" and restrictions only disclosed after enrollment.

Inhibited Redemption: When rewards are deducted, lost, or otherwise inaccessible due to system failures or partner issues, issuers may be liable. Refunds after such failures may not absolve the issuer if consumers face inconvenience or monetary harm.

Legal Framework:

Unfair Practices: Practices causing substantial, unavoidable consumer injury without countervailing benefits are deemed unfair.

Deceptive Practices: Misleading or material omissions that affect consumer decisions can be deceptive, even if buried in terms and conditions.

Responsibility for Third-Party Actions:

Credit card issuers may still be liable for actions of their partners (e.g., merchants or loyalty program providers) if those actions undermine consumers' ability to redeem rewards as advertised.

Consumer Protections and Market Oversight:

Consumers rely on rewards programs when selecting credit cards, and these programs are heavily marketed. Misrepresentation of rewards or their redemption terms undermines trust.

Operators of rewards programs are expected to avoid practices that reduce earned rewards' value or make redemption unnecessarily complex or inaccessible.

Enforcement and Guidance:

The CFPB provides this guidance to ensure consistent enforcement of consumer financial protection laws. State and federal regulators can take action against violators, ensuring accountability across the market.

Implications for Consumers and Credit Card Issuers:

Consumers should receive clear, accurate, and consistent information about rewards and their redemption.

Issuers must ensure transparency in rewards programs and prevent any practices that could mislead or harm consumers.

This guidance highlights the CFPB's focus on protecting consumers from hidden risks in credit card rewards programs and ensuring fair practices in their administration.