Credit Card Companies Warned of Deceptive Balance Transfer Offers

Some credit card issuers are misleading consumers about the real cost of balance transfers and low-interest promotions, the Consumer Financial Protection Bureau announced Wednesday. The agency did not name any culprits, but issued a general bulletin alerting banks that they risk inviting an enforcement action if the deceptive marketing continues.

In its bulletin, the bureau said some card issuers fail to clearly explain that consumers who take advantage of low-rate periods for purchases or transfers risk paying higher rates if they fail to pay off the entire balance when the promotional period ends.

“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said CFPB Director Richard Cordray. “Before they sign up, consumers need to understand the true cost of these promotions. Today, we are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”

This “gotcha” primarily affects consumers who normally pay their balances in full to avoid interest charges. With virtually all credit cards, carrying a balance of any type or amount means you lose the benefit of the grace period. So if you take advantage of a low-rate balance transfer but then charge additional purchases to the card, you will end up paying interest on those new purchases immediately, not once the balance of those additional purchases goes unpaid at the end of the month, like many cardholders who pay their bills in full every month expect.

The bulletin notes that some advertising materials don’t disclose the rate increases at all, while others fail to make the notice prominent enough, creating the “impression” that higher rates won’t apply.

“Some card issuers do not adequately convey in their marketing materials that a consumer who accepts such a promotional offer will lose his grace period on new purchases if he does not pay the entire statement balance, including the total amount subject to the promotional APR, by the payment due date,” the bulletin says.

Last year, the CFPB issued a report raising concerns that many consumers are still confused about the way banks calculate credit card interest.

The CFPB offered these tips for consumers:

Avoid the interest. Consumers who do not carry a balance can take advantage of promotional rates and avoid unexpected interest if they don’t make new purchases with the card until they pay off the entire balance. To avoid interest charges on new purchases, these consumers should consider paying with cash, debit, or another credit card that doesn’t have a balance.
Make payments on time to avoid surprise charges. Consumers should be sure to make payments on time. For promotional and deferred-interest balances, consumers should pay off the entire balance before the end of the promotional period.
Compare the interest rates among credit cards. Consumers that carry a balance on all their credit cards should compare the interest rates among their cards to decide which is the best deal for new purchases. These consumers should also consider paying for new purchases with cash or debit.

Nessa Feddis, spokeswoman for the American Bankers Association, said regulatory compliance is of highest importance for the industry.

“Providing clear and transparent disclosures so our customers are fully informed is one of our industry’s top priorities,” Feddis said via email. “As the CFPB points out, federal regulations require – and banks ensure – that consumers receive four highlighted notices indicating they will lose the grace period on new purchases if they don’t pay their balance in full. This is true whether that balance is made up of purchases, cash advances or balance transfers.”

If you want to know if a balance transfer credit card is right for you, here’s a guide to when these cards make sense.