Credit card firms slapped over balance transfer deals
Anyone struggling to pay off a credit card balance is going to be tempted when an offer comes to transfer that money to a credit card with a zero percent interest rate. But zero doesn't always end up being zero, and the Consumer Financial Protection Bureau (CFPB) this week warned credit card companies to be honest with consumers and avoid deceptive marketing practices with these offers.
The CFPB said it issued the warning over concerns that consumers were getting hit with surprise charges, including interest they weren't expecting to pay. Credit card issuers need to be more transparent with these offers, the financial watchdog said.
"Credit card offers that lure in consumers and then hit them with surprise charges are against the law," CFPB Director Richard Cordray said in a statement. "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."
The CFPB also put out a bulletin (PDF) noting concerns the agency has about marketing practices, including sending consumers balance transfer checks, and not making clear that the transfer could include a hefty fee. For example, a few cards offered by major banks now charge $5 or 3 percent of the transfer amount, whichever is greater. Transfer $10,000 and that is a $300 fee.
In some cases, the CFPB said, the fees and other charges can end up costing consumers more money than they believed they would save by going to a zero interest rate card.
In addition, the CFPB said consumers could face unexpected charges if they use the new card for purchases. They could find themselves accruing interest on all new expenditures until the entire transferred balance is paid off.
The CFPB offers these tips to consumers to help sort out credit card offers that come with promotional interest rates:
- Consumers that 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.
- 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.
If you have a complaint about a credit card, you can report it to the CFPB on its website, by phone at at 1-855-411-2372, or by mail to Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244.
