The CFPB’s New Document Discusses How Credit Card Rewards Devaluations Might Be Illegal

A new circular from the Consumer Financial Protection Bureau (CFPB) answers the question of whether credit card companies are violating the law if they devalue their rewards programs. In short, the answer is, “They could be.”

The answer is nuanced, and this doesn’t mean the CFPB is claiming any particular credit card issuer is violating laws about consumer protections. However, the circular does provide examples of situations that would violate consumer protection laws.

Here’s what you should know.

New CFPB Circular on Credit Card Rewards Devaluation

The Consumer Financial Protection Bureau estimates that more than 75% of general-purpose credit cards were rewards-earning credit cards at the end of 2022, and the agency estimates consumers earn more than $40 billion in rewards from these credit cards annually — up more than 50% from 2019’s numbers.

As we’ve seen in recent years, credit card rewards programs change regularly. This can include requiring you to spend higher sums to unlock a benefit, changing your card to earn rewards at a lower rate, or changing a card’s benefits altogether. When these changes come after you already hold the card, that leaves consumers frustrated.

The CFPB’s new circular was distributed to other government agencies with enforcement authority to address whether rewards program changes might violate consumer protection laws. Rather than saying any particular card or card issuer is violating the law, the CFPB provided some examples.

When considering agencies, banks, persons, or third-party actors under its jurisdiction, the CFPB believes that certain changes to credit card reward programs can violate the law when it comes to “unfair, deceptive, or abusive acts or practices in a variety of circumstances,” even if those were provided by a third party on a card issuer’s behalf.

The CFPB provided examples of potential violations of these laws in 3 categories:

(1) The redemption values of rewards that consumers have already earned or purchased are devalued; (2) consumers’ receipt of rewards is revoked, canceled, or prevented based on buried or vague conditions, such as criteria disclosed only in fine print or up to the operator’s discretion; or (3) consumers have reward points deducted from their balance without receiving the corresponding benefit of the rewards, including due to technical failures when redeeming rewards points on merchant partners’ systems.

-CFPB response summary

The CFPB also focused on the fact that both the card providers themselves and the partner reward program (in the case of hotel and airline transfer partners) will often adjust how many points you need for a redemption — doing so after you already earned the rewards and typically not in conjunction with any change in the underlying cash price of what you want to redeem points for. This has led to a rise in CFPB complaints from consumers against their credit card rewards programs.

Many of these complaints have focused on the inability to redeem rewards in a particular method (e.g., the elimination of using points for a statement credit) or the rewards from a welcome bonus not being enough for the redemption in advertising materials that convinced people to apply for the credit card in the first place.

Plus, the CFPB seems to believe that credit card eligibility requirements are increasingly complex and often buried on separate pages, making people ineligible for a bonus after they’ve already applied for a card — or having to return a bonus because they violated a hidden rule.

What’s the CFPB’s Stance?

If marketing materials that convince consumers to apply for a credit card are inaccurate or provide rewards that can’t be redeemed as these marketing materials indicated, this could be a violation of the law through bait-and-switch advertising. That could even cover devaluations of rewards that you earned with the promise of redeeming them for a certain number of flights or to a certain destination that’s no longer possible after you opened the credit card.

It also could be a violation of the law if consumers don’t receive rewards or have them revoked based on “buried or vague conditions.” Another example of a potential violation would be consumers not receiving the reward they were promised when they redeemed their points, even though the points were deducted from their accounts.

According to the CFPB, credit card marketing activities “may constitute unfair or deceptive acts or practices” when the value of credit card rewards programs are devalued after consumers used those marketing materials as a decision point to apply for a credit card.

The CFPB believes enforcement agencies should investigate these potential infractions but is aware that some programs are more complex than others — and thus, their devaluations may be harder to evaluate for any potential infractions. Investigators could also evaluate the balance sheets of the rewards programs themselves to see the value they’re assigning their rewards, plus any efforts they’re taking to preserve the value of the rewards when programs change, merge, or leave the partnership.

The CFPB’s Circular Discussing Vague Terms and Hidden Conditions

The new circular also addresses the lengthy terms and conditions for credit card rewards programs, saying these may not match the promotion materials used to convince consumers to apply for a credit card. And the CFPB says they also aren’t intuitive to the average consumer, let alone not being displayed prominently.

Examples of unfair terms that could violate the law include:

• “Revoking or canceling rewards based on vague catch-all language in program terms, such as ‘gaming’ or ‘abuse.’ This can be especially problematic when those terms are also subject to the rewards program operator’s discretion.
• Revoking previously earned rewards based on policies that tie revocation to actions that are not within the consumer’s control and do not constitute fraud or misconduct by the consumer, like an issuer unilaterally closing an account.
• Promotional ‘sign-up’ offers that are denied based on hidden conditions that consumers were not reasonably aware of, such as ‘churning’ conditions that restrict how frequently a consumer can earn sign-up rewards, time periods to earn rewards that are effectively shortened by the hidden and unavoidable period of time needed to receive and activate a card, or promotional offers that are unavailable for applicants through certain channels.”

The CFPB says these types of fine print “often constitute deceptive representations … and thus violate the prohibition on deceptive practices.”

Final Thoughts

The Consumer Financial Protection Bureau released Circular 2024-07, discussing whether credit card companies may be violating the law by devaluing their rewards. They may be, though that would ultimately be decided by enforcement agencies, and this circular was distributed to them.

The document addresses the devaluation of rewards and how programs may lure consumers in with flashy advertising only to make it impossible to earn or redeem the rewards in the ways that convinced them to apply for the credit card in the first place.

If enforcement agencies find that’s happening, it could lead to punishment. We’ll have to keep watching for when those might come.