Credit card issuers should consider themselves on notice.
The Consumer Financial Protection Bureau put out a bulletin Wednesday warning financial institutions against deceptively marketing interest-rate promotions, including balance transfers, deferred interest offers and convenience checks.
The bulletin was issued after the CFPB concluded some firms' marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on new purchases.
Certain interest-rate promotions are billed as a good option for debt-ridden customers since they allow them to transfer an existing credit card's balance onto a new card and pay no-to-low interest on it for an extended timeframe (typically between 12 and 18 months).
However, per the CFPB, some firms stipulate that new cardholders will lose their grace period -- the timeframe between the end of a billing cycle and the payment due date in which consumers who pay their balance off in full can avoid interest on new purchases -- if they fail to pay the full balance, including the promotional one, by the statement due date.
If a cardholder does lose this grace period and continues to use their card, they could unwittingly rack up interest on the new purchases. The surprise charges can often make the cost of transferring a balance more expensive than revolving the same balance on the original card, the CFPB says.
"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 press release. "Before they sign up, consumers need to understand the true cost of these promotions."
Per the bulletin, some issuers fail to disclose the caveat entirely. Others bury it in their promotional materials or use technical language that fails to clearly explain the terms. These methods are considered a violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB says.
It expects issuers to "implement internal controls sufficient to ensure that they market promotional APR offers in a manner that limits the risk of statutory or regulatory violations and related consumer harm."
The CFPB also provided some tips for consumers regarding these types of promotions. They include paying balances on time and in full, refraining from using these cards to make new purchases until the promotional balance has been paid off and comparing interest rates among credit cards.
Consumers who are having an issue with their financial firm can submit a compliant to the CFPB.
Have you ever been hit with surprise interest charges as a result of a balance transfer or deferred interest offer? Let us know in the comments below.
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