As holiday shopping intensifies, the Consumer Financial Protection Bureau is alerting credit card companies that it is aware of their unlawful bait-and-switch tactics regarding rewards.

The CFPB has noted that certain credit card companies are unlawfully reducing the value of rewards points and airline miles. They do this by utilizing complex terms to cancel rewards, using unclear wording on how to earn them, or making it challenging to redeem rewards. Additionally, they highlighted high interest rates and excessive fees on retail credit cards.

To support consumers, the CFPB has introduced the Explore Credit Cards tool, which utilizes open data to assist consumers in making straightforward comparisons between various credit card options. This tool offers detailed data for over 500 credit cards that is accessible to everyone.

“Major credit card issuers frequently engage in tactics that mislead customers into selecting expensive cards, enhancing their profits while depriving consumers of the rewards they deserve,” stated CFPB Director Rohit Chopra. “Credit card issuers that advertise cashback bonuses or complimentary round-trip flights should actually provide those benefits.”

What features does the Explore Credit Cards tool offer?

The tool enables users to compare credit cards based on factors such as credit score range, interest rates, fees, and reward offerings, helping them select the best option, according to the CFPB.

Additionally, the tool aims to foster competition, giving smaller banks and companies with superior credit card offerings an opportunity to compete, the agency noted.

In accordance with regulations, only the 25 largest credit card issuers and 125 others chosen by the CFPB from a representative sample are mandated to provide data. Other issuers are encouraged to voluntarily share their information, the CFPB stated.

Potential savings for consumers

A CFPB analysis revealed that the 25 leading credit card issuers charge interest rates that are 8 to 10 percentage points higher compared to smaller banks and credit unions. This discrepancy can result in annual costs of $400 to $500 for the average credit card holder.

Retail credit cards can impose even heavier financial burdens on consumers. About 90% of retail cards reported a maximum APR exceeding 30%, in contrast to just 38% of non-retail general-purpose cards, according to the CFPB.

Moreover, many branded or private label cards have a fixed APR, meaning all cardholders pay the same rate, regardless of their creditworthiness. As of December, the average APR for cards from top retailers stood at 32.66%. Additionally, large retail credit card issuers raised costs by charging fees for paper statements, the agency reported.

Profit-sharing agreements between retailers and card issuers could encourage aggressive marketing of retail cards to consumers, pushing them to spend more, the CFPB noted.