Credit Card Issuers Beware: CFPB Fires Warning Shot on Promotional APRs

by Foley & Lardner LLP
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Who could possibly object to zero or low promotional interest rates offered for convenience checks, balance transfers or new purchases?

The Consumer Financial Protection Board (CFPB), that’s who.

In a new Bulletin based on its findings from examinations of large banks and card issuers, the CFPB warns that some credit card issuers may be engaging in deceptive or abusive acts or practices when promoting or offering promotional APRs, in violation of Section 1031 of the Dodd-Frank Consumer Financial Protection Act. According to the CFPB, some card issuers are failing to sufficiently warn consumers that their continued use of credit cards for purchases during a promotional period may forfeit the grace period on new purchases if the consumers do not pay the entire statement balance (including the amount subject to the promotional APR) by the payment due date.

The Bulletin makes clear that card issuers’ legal responsibilities go well beyond compliance with Regulation Z in marketing and offering credit cards with a promotional APR feature. In particular, the CFPB now mandates, among other things, that card issuers implement measures (including in their compliance programs) to ensure that all marketing materials “clearly, prominently, and accurately” describe the material costs, conditions and limitations associated with promotional APR offers and the effect of promotional APR offers on the grace period for new purchases.

Concerns about grace periods–consumer misunderstandings about how they work and questions about whether Regulation Z-compliant disclosures adequately disclose risks associated with grace periods and promotional APRs–were previously raised by the CFPB in a report to Congress.

Based on the CFPB’s heightened level of focus, prudent card issuers should take a fresh look at their new and existing promotional APR programs to ensure that all marketing materials and disclosures meet the CFPB’s expectations.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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