Credit Card Reward Program Regulations May Be On The Way
In the aftermath of the financial crisis, Congress passed financial regulations meant to add more oversight into the financial markets to hopefully avoid another crisis. In 2009 they passed the CARD act, which enforced new rules on credit card companies including how often they could change consumer APRs and how much they could charge merchants for debit transactions. As a result, in 2011 most banks stopped issuing mileage earning debit cards because it became too unprofitable to offer rich rewards on the reduced amount they could charge merchants for transactions.
Another blow to the banking/credit card industry was the Dodd–Frank Wall Street Reform and Consumer Protection Act, which created the Consumer Financial Protection Bureau (CFPB) in 2011 as a central agency to protect consumers from predatory lending practices. While credit card interest rates and fees have been under the magnifying glass, rewards programs have largely been unregulated. However, recently I've been hearing rumblings about the government looking to regulate these programs, which is the central theme of this Bloomberg article that came out today.
"Consumers can face “detailed and confusing rules” about using rewards, CFPB Director Richard Cordray said in an e-mail yesterday. “We will be reviewing whether rewards disclosures are being made in a clear and transparent manner, and we will consider whether additional protections are needed.”
While this could mean a lot of different things, I wouldn't be surprised for rules to be put into place around sign-up bonuses and making sure that rewards programs are marketed appropriately. I think this could also affect devaluations- meaning more timing and disclosures could be required if the value of points accrued drastically change. There have been a slew of airline and hotel devaluations recently- with United, Delta and Southwest being the most egregious. All three have extremely valuable credit card portfolios and perhaps they saw new rules coming and wanted to get in a big devaluation now so they wouldn't have to worry about it for years to come- even if new regulations do actually happen.
I'm not completely surprised by the Bloomberg article. Back in July of this year I wrote a post "My Credit Card Industry Outlook – What To Expect For The Rest of 2013 and Beyond" and one main issue that I deal with in working with credit card companies is that offers need to be compliant and transparent so that consumers know exactly what they're getting when they submit a credit card application.
I think these rules could be good and bad. Based on TPG reader feedback and that from family and friends, I know a lot of people who have signed up for special offers and not received the bonus due to poor tracking or violating unpublished rules, such as being an existing cardholder even though the application was approved. Some credit card companies even change the sign-up bonus whether you're logged into your account or click through different channels.
I expect any regulations to force credit card companies to add more disclosures to applications to make sure it is 100% clear whether a consumer is eligible for a bonus and also add more transparent tracking so that all spend requirements are displayed so there is no confusion about when the time to hit the spend requirement is met or not. Right now some companies start that clock when you're approved, though that date can sometimes be confusing if your application goes into a pending status after submitting yet you receive a card in the mail at some point in the future.
Any new rules could have negative effects as well. If credit card companies are forced to offer standardized offers across all channels, it could mean less limited time offers and lucrative targeted offers. If sign-up bonuses become such a liability we could see a move away from bonuses and more into other areas like category spend bonuses and new reward options, which could require more spend and effort to achieve than the lucrative sign-up bonus we've all come to love.
However, I don't think this is doomsday and some more rules and transparency (like not being approved for a different card than what you apply for) will be a win-win for everyone.
What rules or regulations would you like to see from the CFPB regarding rewards programs? Or do you want them to stay away and let the market take its course?