Credit Card Reward ‘Bait and Switch’ Tactics Face CFPB Scrutiny

The Consumer Financial Protection Bureau is preparing to take a closer look at credit card rewards programs, the agency’s director said.

CFPB Director Rohit Chopra on Friday said his agency is eyeing new guidance for how the Electronic Fund Transfer Act, a 1978 law governing electronic payments, applies to what he called “private digital dollars” and other digital currencies, including crypto.

In particular, Chopra said the CFPB is concerned about potential “bait and switch” tactics deployed by credit card companies to entice people into signing up for rewards plans.

“There’s a lot of concerns about misrepresentations about how those points could be used,” he said in an appearance at the Brookings Institution.

The consumer watchdog will also have to answer a bigger question about whether those points are equivalent to cash.

“We do get a lot of questions about how they interact. Are these funds? We may have to provide more guidance about that,” Chopra said.

The CFPB director went on to highlight the broader perils he sees in the development of America’s payments system.

“I fear that the US is lurching toward a consolidated market structure like the one that has emerged in China, that blurs the lines between payments and commerce and creates the incentives for excessive surveillance and even censorship,” Chopra said.

To combat that, the CFPB plans to seek additional information from some big tech companies that operate payment processors about their use of consumer data. Apple Inc. and Alphabet Inc.‘s Google were among the businesses that previously received information demands from the CFPB in October 2021.

Chopra didn’t specify which companies would receive the supplemental orders.

The CFPB is considering directly supervising large, nonbank payment platforms, including creating a so-called larger participant rule that would bring the biggest players under the CFPB’s supervision, according a regulatory agenda released this summer.

Chopra also called for new federal privacy legislation to go beyond what currently exists under the Gramm-Leach-Bliley Act, the 1999 law that requires companies to provide written privacy policy notices, among other data security requirements.

And he said he would continue to push the Financial Stability Oversight Council, led by Treasury Secretary Janet Yellen, to consider using its powers under Title VIII of the Dodd-Frank Act to make new rules for systemically significant payment providers.

In addition to those efforts, Chopra reiterated the CFPB would release a proposal for allowing consumers to have better control over their financial data, to facilitate open banking with fintechs and other third parties this month. That rule is mandated by Section 1033 of the Dodd-Frank Act.