When you're carrying a balance on a credit card, getting a low rate balance transfer offer--or even a zero percent offer--could be a blessing in the form of potentially hundreds of dollars saved, or it could be a curse in the form of unanticipated interest charges you never knew were coming.
The Consumer Financial Protection Bureau (CFPB) has issued a bulletin to credit card issuers warning them about deceptive marketing practices around low rate and zero percent balance transfer offers because of issues with consumers getting surprised with interest charges if they haven't paid off the balance before the low rate offer expires. The CFPB also noted that card issuers need to clearly state the costs and risks of promotional offers, giving consumers all of the information they need to assess the offer's worth before they sign up for it.
"Credit card offers that lure in consumers and then hit them with surprise charges are against the law," said CFPB director Richard Cordray in a CFPB release. "Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use."
The types of transactions that fall under promotional APR offers are convenience checks, deferred interest or promotional interest rate purchases, and balance transfers. While the promotional period gives consumers a chance to finance a larger purchase over time or transfer a large balance in order to save money, this does come at a cost, be it a percentage of the amount involved or a fixed transaction fee. The issuer will charge whichever of those is higher.
Additionally, consumers need to know what else is involved in a promotional APR offer, particularly if they do not pay off the balance in full when the promotional period is over. Typically, when you make a purchase on a credit card, you're given a grace period in which you can pay it off. If you don't, that is, you choose to carry a balance on your card, the credit card issuer will charge interest on that amount from the date it hit the card statement. To give a rough example, say you bought a $500 TV on the first of the month, your credit card statement closes on the 25th and is due on the last day of the month. If you don't pay off that $500 charge, the amount you didn't pay will accrue interest starting from the first of the month. On top of that, the card issuer takes away that grace period on every subsequent purchase until you pay your card off completely.
That's one of the reasons promotional offers are tempting to use. However, the CFPB discovered that some card issuers don't explicitly say that they'll remove the grace period on new purchases if the entire balance--including whatever was charged to the promotional offer--isn't paid off in full by the balance due date. This could cause consumers to face charges they didn't expect, which could negate any savings from the promotional offer.
The CFPB contends that credit card issuers that fail to clearly disclose fees and other information surrounding the terms of promotional offers could be subject to sections of the Dodd-Frank Act that prohibit unfair deceptive or abusive acts or practices. The CFPB also expects credit card companies to police themselves to make sure they comply with all regulations.
This bulletin serves as a warning and reminder to credit card issuers to make sure they adhere to the regulations and ensure their marketing materials clearly include the terms and costs involved with promotional interest rate and balance transfer offers.
