CFPB Sends Letters to Credit Card Cos. Regarding Deferred Interest

06/14/17 – The Consumer Financial Protection Bureau (CFPB) has sent letters to top retail credit card companies encouraging them to use more transparent promotions.

Many retailers use credit cards with deferred-interest promotions—offers of no interest for a set period if the promotional balance is paid in full by the end—to give consumers a financing option, often for larger purchases.

The letters outline Bureau concerns that these promotions may surprise consumers with high, retroactive interest charges after the promotional period ends.

A 2015 CFPB report found that the number of purchases using deferred-interest promotions rose 21 percent between 2010 and 2013. The Bureau has warned about the consumer risks associated with deferred-interest promotions due to their back-end pricing and associated lack of transparency. The CFPB report raised several issues with these promotions, including:

• Consumers paying more than the promotional balance: More than half of the people who incur deferred-interest charges and have other purchases on the account pay more than the full amount of their promotional balance during the promotional period.
• Many consumers may be able to meet the terms of the promotion but fail to do so within the set time period: The 2015 CFPB study found that many consumers who do not repay the promotional balance within the promotional period do pay off the remaining amount of the balance and the deferred-interest charges shortly thereafter.

The CFPB suggests that companies consider using a zero-percent-interest promotion that is more transparent and carries less risk for consumers.

CFPB Press Release, Sample Letter.