CFPB Takes Action to Protect Consumers from Credit Card Practices

Investing.com — The Consumer Financial Protection Bureau (CFPB) has announced significant actions aimed at protecting consumers from illegal credit card practices and assisting them in saving on interest and fees.

The agency has warned that some credit card companies running rewards programs may be violating the law by illegally devaluing rewards points and airline miles.

New Research Findings

The CFPB released new research indicating that retail credit cards, which typically offer store-specific rewards and loyalty programs, charge considerably higher interest rates than traditional credit cards.

Explore Credit Cards Tool

To help consumers find the best credit card rates, the agency introduced a new tool, Explore Credit Cards. This tool allows consumers to compare over 500 credit cards using unbiased, comprehensive data.

CFPB Director Rohit Chopra stated, "Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they've earned." The CFPB is targeting bait-and-switch tactics to promote competition in credit card markets, thus offering more choices to consumers.

Action Against Credit Card Issuers

The CFPB's actions arrive during the hectic end-of-year shopping and travel season when retail card originations typically peak due to high retail sales and holiday promotions. The agency has also taken action against issuers such as American Express (NYSE:AXP) and Bank of America for illegal practices related to credit card rewards programs and will continue to monitor these programs as needed.

According to the CFPB's research, retail credit cards represent a substantial segment of the consumer credit card market, with one in four credit card accounts being a private label retail card. More than 80% of these retail cards are issued by four large banks, making them more expensive than general-purpose cards.

Comprehensive Comparison Data

The Explore Credit Cards tool is designed to help consumers perform apples-to-apples comparisons of credit card options using open data. Unlike existing comparison sites limited to a small selection of cards with high fees and APRs, this tool offers comprehensive information on over 500 cards, which is accessible to everyone.

The tool addresses the lack of price competition in the credit card market; significant rate differences exist between issuers catering to similar customers but consumers struggle to compare interest rates effectively before applying. By enabling exploration based on credit score range, interest rates, fees, and rewards, the tool increases consumer certainty when searching for suitable cards.

The CFPB encourages more companies to contribute to the data set to ensure clear information amidst the marketing on pay-to-play platforms.

Previously, the CFPB used this comparison data to reveal that the 25 largest credit card issuers charge interest rates 8 to 10 percentage points higher than smaller banks and credit unions, resulting in an average annual cost of $400 to $500 for cardholders. By requiring issuers to report actual average interest rates by credit tier and making this data public, consumers gain access to valuable information for finding the best rates based on their needs.

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