CFPB Urges Transparency in Credit Card Company Promotions

deferred-interest options can be harmful to consumers

CFPB Urges Transparency in Credit Card Company Promotions
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June 9, 2017

Have you been fooled by a credit card offer? If you have, the Consumer Financial Protection Bureau (CFPB) is not surprised.

The agency has announced that it has sent letters to top retail credit card companies encouraging them to consider using promotions that are more transparent. Many retailers use credit cards with deferred-interest promotions (offers of no interest for a set period if the promotional balance is paid in full by the end) to give consumers a financing option, often for larger purchases.

The letters outline concerns that these promotions may surprise consumers with high, retroactive interest charges after the promotional period ends. The CFPB suggests that companies consider using a zero-percent-interest promotion that carries less risk for consumers.

"With its back-end pricing, deferred interest can make the potential costs to consumers more confusing and less transparent," said CFPB Director Richard Cordray. "We encourage companies to consider more straightforward credit promotions that are less risky for consumers."

Deferred-interest promotions are typically offered on store credit cards. Under a deferred-interest plan, the consumer pays no interest if the purchase amount is paid off within a set period, typically six to 12 months. If any promotional balance remains when the promotional period ends, consumers are charged accrued interest on the promotional balance from the time of purchase. The interest rate on these cards is generally about 25 percent, so these deferred-interest charges can be substantial. A consumer carrying even a small balance past the promotion's expiration date may owe much more in interest than the remaining purchase balance due.

A 2015 CFPB report found that the number of purchases using deferred-interest promotions rose 21 percent between 2010 and 2013.

The CFPB suggests that retailers use a more straightforward zero-percent-interest promotion.