CFPB warns card issuers: Reveal costs of 0% promotional offers


Careful: That 0 percent balance transfer deal might cost you more than it saves, federal regulators warned Wednesday as they told card issuers to make the dangers clearer to consumers.

Many people are signing up for lucrative-sounding offers without realizing one big catch: Additional purchases bought during the promotional time frame can torpedo the grace period, according to the Consumer Financial Protection Bureau. So instead of saving on interest charges, you may actually rack up extra costs.

"Before they sign up, consumers need to understand the true cost of these promotions," CFPB Director Richard Cordray said in a written statement.

The watchdog bureau issued a warning to credit card issuers Wednesday to make the danger clear in their promotional materials and card agreements.

And it's not just balance transfers that can put your grace period at risk. The danger also arises when cashing convenience checks or using a store card's no-interest-for-x-months deal.

The CFPB estimates that consumers made millions of promotional balance transfers in 2013, and tens of millions of consumer credit cards have a grace period.

The pitfall affects people who take advantage of their cards' grace periods on new purchases by paying their balances in full by the due date. If you put, for example, $1,500 in purchases on your card each  month, you can avoid interest charges by paying off the entire $1,500 by the due date for the month.

But having a promotional balance on the card will put an end to that break on interest. So if you continue making $1,500 in monthly purchases, interest starts building up on the day of purchase. Interest on the purchases could amount to nearly $200 a year, at the average credit card APR of about 13 percent, even if you continue paying off your new purchases each month.

"The bureau has observed that some issuers do not include any information about the loss of the grace period for affected consumers in promotional rate marketing materials," the CFPB's bulletin said. Other issuers buried the warning in fine print, or obscured it with technical language. 

Expect that to change. Leaving people in the dark about the dangers could amount to an abusive practice under the Dodd-Frank consumer protection act, the CFPB warned in its bulletin to card issuers.

How to avoid the pitfall? Consumers can still take advantage of promotional offers without losing their grace period on purchases through careful management, the CFPB said. The key is to avoid making new purchases on a card with a transfer balance or deferred-interest balance. Use cash, debit or a different credit card until the promotional balance is paid off.

See related: 0 percent balance transfer offers stage a comeback

Published: September 3, 2014

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Updated: 10-20-2016

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