Nearly seven years after a landmark overhaul of the credit card industry, regulators are renewing their scrutiny of a popular credit card feature that can negatively impact consumers who don’t use it as intended.
Deferred-interest promotions, commonly offered on store-brand credit cards, give consumers a chance to buy big-ticket items like appliances, furniture or even medical procedures and put off paying any interest charges often for the first six to 12 months. Critics warn that the deals can be misleading and costly, because shoppers do not always realize they will be hit with interest charges for the entire period if they fail to pay off their balances by the end of the promotion.
Several reports by regulators singled out such promotions as “the most glaring exception” to the trend toward “upfront” pricing after the passage of the 2009 Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act of 2009). That act was a sweeping reform of card industry practices that aimed to eliminate hidden fees and curb abusive policies, particularly those affecting borrowers with poor credit. A majority of the cards with deferred-interest promotions are issued by the biggest providers of store-brand cards. Some of these banks, do not break out financial data for deferred-interest promotions. The promotions help sway consumer behavior.
Last August, Springstone Financial refunded $700,000 to consumers who had signed up for its deferred-interest dental card without being given proper instructions. Regulators filed a series of enforcement actions against the card issuers starting in 2012, citing deceptive practices, and managed to transform the way those add-ons are marketed and sold without writing a formal regulation. If regulators find an issuer they think is hiding information about how these promotional offers work, there’s no question they will go after that credit card issuer.
If your institution is a card issuer for these types of promotions, call upon our former, Federal regulators and card industry experts, to review your policies and practices and assess your compliance management system to ensure it is appropriately addressing potential deficiencies in this area.