The Consumer Financial Protection Bureau has sent a number of letters to retail credit card companies, encouraging them to consider using more transparent promotions. Many of these retailers offer credit cards with no interest over a set period if the promotional balance is paid in full by the end of the term. The letters outline bureau concerns that these promotions may surprise consumers with high, retroactive interest charges after the promotional period ends. Therefore, the CFPB has suggested that companies consider using a zero-percent-interest promotion that is more transparent and carries less risk for consumers.
“With its back-end pricing, deferred interest can make the potential costs to consumers more confusing and less transparent,” said CFPB Director Richard Cordray. “We encourage companies to consider more straightforward credit promotions that are less risky for consumers.” Turning his attention to another topic, Cordray affirmed the bureau's intention to move forward on debt collection regulation.
Retail cards. These credits are typically offered through retail stores to allow consumers to finance large purchases such as appliances, furniture, and medical or dental services, and pay the cost over time. Under a deferred-interest plan, the consumer pays no interest if the purchase amount is paid off within a set period, typically six to 12 months. If any promotional balance remains when the promotional period ends, consumers are charged accrued interest, usually 25 percent, on the promotional balance from the time of purchase.
The bureau has urged these retailers to use a more straightforward zero-percent-interest promotion where consumers are charged interest only on the balance that remains.
Consumer tips. The CFPB has published consumer tips to help individuals understand the different credit card interest-rate promotions. According to the bureau, consumers should be aware of factors that determine the cost of borrowing, which include:
- length of the promotional period;
- interest rate after the promotional period; and
- payment each month needed to pay off the purchase during the promotional period
Debt collection rules. The CFPB intends to adopt rules to regulate debt collections by both debt collectors and first-party creditors, according to CFPB Director Richard Cordray. In remarks prepared for a Consumer Advisory Board meeting, Cordray said that the bureau has changed its plan to adopt separate rules for debt collectors and creditors and now intends to write what he termed a “right consumer, right amount” rule that will apply across the debt collection market.
According to Cordray, the debt collection industry and consumer advocates agree that updated FDCPA interpretations are needed due to changes in technology and the growth of debt buying since the Act was passed in 1977. The bureau outlined its initial plans for debt collection rules last July, addressing debt information integrity, disclosures, limits on communications, and debt disputes. Initially, the intent was to adopt a rule that would have applied only to companies who were covered by the Fair Debt Collection Practices Act, with creditors collecting their own debts to be addressed separately.
However, the bureau’s analysis of the comments it has received on the July 2016 proposal has revealed that separating the debt information integrity issues into different rules for debt collectors and creditors was problematic, the director said. Creditors create the data and then pass it on to debt collectors; however, all companies that collect debts need to have complete and accurate data. That will be better addressed by a single regulation, he said.
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