Consumer Financial Protection Circular 2024-07: Design, Marketing, and Administration of Credit Card Rewards Programs

<RULE> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Chapter X</CFR> <SUBJECT>Consumer Financial Protection Circular 2024-07: Design, Marketing, and Administration of Credit Card Rewards Programs</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Consumer financial protection circular. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (Bureau or CFPB) has issued Consumer Financial Protection Circular 2024-07 titled, “Design, marketing, and administration of credit card rewards programs.” In this circular, the CFPB responds to the question, “Can credit card issuers violate the law if they or their rewards partners devalue earned rewards or otherwise inhibit consumers from obtaining or redeeming promised rewards?” </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> The CFPB released this circular on its website on December 18, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Enforcers, and the broader public, can provide feedback and comments to <E T="03">Circulars@cfpb.gov.</E> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> George Karithanom, Regulatory Implementation & Guidance Program Analyst, Office of Regulations, at 202-435-7700 or at: <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Question Presented</HD> Can credit card issuers violate the law if they or their rewards partners devalue earned rewards or otherwise inhibit consumers from obtaining or redeeming promised rewards? <HD SOURCE="HD1">Response</HD> Yes. Covered persons that offer, provide, or operate credit card rewards programs, and their service providers, may violate the prohibition against unfair, deceptive, or abusive acts or practices in a variety of circumstances, including instances where some of the conduct in question may be attributable to a third party, such as a merchant partner, and regardless of whether covered persons or service providers are taking actions consistent with rewards program terms. This circular provides some examples where covered persons that offer, provide, or operate credit card rewards programs, and their service providers, may violate the prohibition against unfair, deceptive, and abusive acts or practices, where: (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. <HD SOURCE="HD1">Background on Credit Card Rewards Programs</HD> Rewards programs are increasingly used to encourage consumers to apply for and use specific credit cards. <SU>1</SU> <FTREF/> As of 2019, more than 90 percent of general purpose credit card spending occurred on rewards cards, and by the end of 2022, 75 percent of general purpose credit cards were rewards cards. <SU>2</SU> <FTREF/> While rewards cards are more common for consumers with higher credit scores, the use of rewards cards is growing fastest among deep subprime, subprime, and near-prime consumers. <SU>3</SU> <FTREF/> The amount of money or value that consumers earn and maintain in credit card rewards programs is also large and has increased substantially in recent years. For example, in 2022, consumers earned more than $40 billion in rewards from major general-purpose credit cards, more than a 50 percent increase from 2019. <SU>4</SU> <FTREF/> Consumer rewards balances at the end of 2022 were more than $33 billion, up 40 percent relative to the fourth quarter of 2019. <SU>5</SU> <FTREF/> More consumers are also using rewards to make payments, including for day-to-day purchases and necessary expenses. <SU>6</SU> <FTREF/> <FTNT> <SU>1</SU>   <E T="03">See</E> <E T="03">The Consumer Credit Card Market</E> (Oct. 2023) (hereinafter “ <E T="03">2023 Report</E> ”) at 98, <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2023.pdf.</E> An industry survey found that rewards and cash back programs were the top reason why consumers chose one card over another, as well as the top reason consumers cited for increasing spending on credit cards over the last six months. PYMNTS and Elan, <E T="03">Credit Card Use During Economic Turbulence</E> (Dec. 2023), <E T="03">https://www.pymnts.com/wp-content/uploads/2023/05/PYMNTS-Credit-Card-Use-During-Economic-Turbulence-May-2023.pdf. See also</E> Arielle Feger, <E T="03">Cash-back rewards drive consumers to open new credit cards, eMarketer</E> (Mar. 26, 2024), <E T="03">https://www.emarketer.com/content/cash-back-rewards-drive-consumers-open-new-credit-cards;</E> Drazen Prelec, <E T="03">How credit cards activate the reward center of our brains and drive spending,</E> MIT Sloan (June 9, 2021), <E T="03">https://mitsloan.mit.edu/experts/how-credit-cards-activate-reward-center-our-brains-and-drive-spending.</E> </FTNT> <FTNT> <SU>2</SU>   <E T="03">2023 Report</E> at 99. One study also found that between 2021 and 2023, while total credit card applications decreased by 2 percent, applications for rewards cards and rewards cards with tiered earnings grew by 5 percent and 8 percent, respectively. Marketa Canayaz, <E T="03">Consumer Demand for Rich Rewards Rises,</E> Comscore (July 17, 2024), <E T="03">https://www.comscore.com/Insights/Blog/Consumer-Demand-for-Rich-Rewards-Rises.</E> </FTNT> <FTNT> <SU>3</SU>   <E T="03">2023 Report</E> at 100. <E T="03">See also</E> Electronic Payments Coalition, <E T="03">New Study Shows LMI Households Rely on Credit Card Rewards,</E> Electronic Payments Coalition (Apr. 30, 2024), <E T="03">https://electronicpaymentscoalition.org/2024/04/30/new-study-data-shows-credit-card-rewards-are-a-lifeline-for-working-class-americans/.</E> Despite the growth in the use of rewards cards among consumers with lower credit scores, in many cases, these consumers do not benefit from these rewards programs, and research has shown that consumers with higher credit scores generally benefit from credit card rewards programs at the expense of consumers with lower credit scores. <E T="03">See</E> Sumit Agarwal, <E T="03">et al., Who Pays for Your Rewards? Redistribution in the Credit Card Market</E> (Dec. 5, 2022), <E T="03">http://dx.doi.org/10.2139/ssrn.4126641.</E> </FTNT> <FTNT> <SU>4</SU>  CFPB, <E T="03">Credit Card Rewards</E> (May 2024) (hereinafter “ <E T="03">Credit Card Rewards Issue Spotlight</E> ”) at 9, <E T="03">https://files.consumerfinance.gov/f/documents/cfpb_credit-card-rewards_issue-spotlight_2024-05.pdf.</E> </FTNT> <FTNT> <SU>5</SU>   <E T="03">2023 Report</E> at 100. Notably, consumers also forfeit about $500 million in rewards each year. <E T="03">Id.</E> at 102. </FTNT> <FTNT> <SU>6</SU>   <E T="03">See</E> Rimma Kats, <E T="03">Survey Highlights Growing Consumer Appetite for Paying with Points,</E> Payments Journal (Jan. 3, 2024), <E T="03">https://www.paymentsjournal.com/survey-highlights-growing-consumer-appetite-for-paying-with-points/</E> (noting that a majority of consumers favor redeeming their points at grocery stores, online retail outlets, and at gas stations). <E T="03">See also Chase Survey Reveals How Credit Card Rewards Are Enhancing The Holiday Season,</E> Chase Media Center (Nov. 20, 2023), <E T="03">https://media.chase.com/news/chase-holiday-rewards-survey</E> (noting that during the holiday season, 33 percent of consumers planned to use rewards to pay for gifts and 25 percent on groceries for holiday meals). <E T="03">See, e.g.,</E> Bilt, <E T="03">How do I redeem points towards a down payment?, https://support.biltrewards.com/hc/en-us/articles/10377953401869-How-do-I-redeem-points-towards-a-down-payment.</E> </FTNT> Credit card rewards programs are typically structured around earning rewards “currencies”—most commonly “miles” or other units of value issued by a co-brand partner (such as an airline or hospitality chain) or, alternatively, a credit card issuer's own “points.”  <SU>7</SU> <FTREF/> Consumers typically earn miles or points through credit card spending or by directly purchasing them in accordance with pre-determined formulas, or “earn rates.”  <SU>8</SU> <FTREF/> Many issuers also offer promotional rewards through things like sign-up bonuses and referrals. <SU>9</SU> <FTREF/> <FTNT> <SU>7</SU>   <E T="03">See</E> note 4, at 8. In 2021, more than one in three general purpose credit cards offered were co-branded. <E T="03">See 2023 Report</E> at 25. In addition to rewards currencies and cash back, rewards programs also increasingly offer other affiliated benefits or lifestyle rewards, such as access to airport lounges and priority boarding. <E T="03">Credit Card Rewards Issue Spotlight</E> at 8. </FTNT> <FTNT> <SU>8</SU>   <E T="03">See</E> CFPB, <E T="03">The Consumer Credit Card Market</E> at 212-13 (Dec. 2015), <E T="03">http://files.consumerfinance.gov/f/201512_cfpb_report-the-consumer-credit-card-market.pdf.</E> </FTNT> <FTNT> <SU>9</SU>   <E T="03">See id.</E> at 213. </FTNT> Once earned or purchased by consumers, points can be redeemed for rewards like “cash back” (statement credits or direct deposits) or transfers to a co-brand or merchant partner ( <E T="03">e.g.,</E> miles or merchant-specific gift c ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 48k characters. 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