2014 may be the year for reward credit card regulations

By , CardRatings contributor
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Having tackled mortgage servicers, medical credit cards and student loans, the Consumer Financial Protection Bureau may be turning its attention to a new target: reward credit cards.

Although the bureau hasn't officially opened an investigation, its director told news outlet Bloomberg it may be high time to consider how reward credit cards do business. Richard Cordray, CFPB director, noted his organization plans to review program disclosures as well as discuss whether consumer protections should be put into place.

While consumer protection is typically a good thing, the Bloomberg report questions whether new regulations will mean the end of the amazing sign-on bonuses offered by many reward credit cards.

Complex terms make rewards a target

A possible CFPB investigation doesn't seem to be prompted by a surge in consumer complaints. Rather, it appears to be a preemptive strike against programs that may use what Cordray terms as "detailed and confusing rules."

Credit card rewards are currently unregulated, and with each program operating under its own rules, they can be confusing for consumers. So much so that more than a third of those surveyed by J.D. Power earlier this year said they weren't sure how to earn or redeem rewards points.

According to the Bloomberg article, an individual from the CFPB looking into the issue says the following are some of the bureau's main concerns:

  • Earning rewards may require a certain level of spending or have other requirements. However, the terms for some reward credit cards can be obscure.
  • Rewards points may be subject to inflation, meaning the number of points or miles needed to redeem for rewards can increase over time.
  • Consumers may lose their rewards points if they are late on a payment although some credit card companies may reinstate them under certain conditions.

Could regulation mean fewer rewards?

At this point, it is anyone's guess how government involvement would affect credit card rewards programs. However, some industry watchers think the regulation is unnecessary while others see it has having the potential to curtail rewards bonus programs.

The American Bankers Association is one that says there is no need to regulate rewards programs. An association spokesperson told Bloomberg the market for rewards programs is very competitive, which presumably means it will self-regulate without the need for government intervention.

However, Bloomberg speculates federal rules could result in fewer sign-up incentives from banks. Usually those big initial bonuses come with an asterisk and fine print requiring hefty purchases to be eligible. If those details must be advertised more prominently, fewer consumers might be enticed by the bonus. That, in turn, may result in issuers revamping their strategy to offer smaller bonuses with fewer strings in order to attract customers.

For the time being, it remains your responsibility to read and understand your credit card rewards program. That means understanding whether you need to make certain purchases to earn bonuses and whether there is a chance you could lose your rewards points.

Some of the best credit cards available offer rewards and doing your homework goes a long way to ensuring you are getting the most from your money.


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