A federal agency is warning credit card companies not to offer deceptive interest-rate promotions and is offering tips to consumers about how to avoid problems with such offers.
The Consumer Financial Protection Bureau is concerned that some companies are luring in consumers with offers of reduced or zero interest for a specific purchase or balances transferred from another credit card, and then hitting them with surprise interest charges.
In a new bulletin, the bureau put credit card issuers on notice Wednesday about clearly disclosing 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 Richard Cordray, bureau director.
The bureau’s bulletin highlights concerns about the marketing of credit card interest-rate offers such as balance transfers, deferred-interest offers, and convenience checks.
The bureau said some companies’ marketing materials don’t clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on purchases they didn’t already pay interest on.
For some consumers, these surprise charges can make the cost of transferring a balance more expensive than paying the same balance on their existing card.
Grace periods
These marketing tactics especially 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 aren’t charged interest.
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 bureau said it’s concerned about the level of consumer understanding about credit card grace periods, how they work, and whether financial institutions are providing adequate disclosures.
The bureau said it expects credit card issuers to fulfill their legal obligations by clearly communicating the costs, conditions, and limitations of promotional offers.
Consumer tips
The bureau also offered consumer tips Wednesday about credit card interest-rate promotions and how grace periods work:
- Avoid the interest: Consumers that don’t 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, a debit card, 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.
The bureau also recommends that consumers compare the interest rates of their credit cards. Consumers that carry a balance on all their credit cards should compare the interest rates to decide which is the best deal for new purchases. These consumers should also consider paying for new purchases with cash or a debit card.
To make a credit card complaint:
- Visit consumerfinance.gov/complaint.
- Call 855-411-2372.
- Fax 855-237-2392.
- Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244
In addition, consumers can get answers to their questions about credit cards and other financial products and services at consumerfinance.gov/askcfpb or by calling 855-411-2372.
