Rewards cards draw a surge of complaints to CFPB

Stealth rules and conditions, lack of regulation, and popularity of rewards drive rise in gripes

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

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Free money, miles, points and perks – what’s not to like about credit card rewards?

Plenty, according to a surge of consumer complaints filed with the federal government’s consumer watchdog.

Complaints about rewards spiked 88 percent in 2016, becoming the No. 4 source of credit card gripes filed with the U.S. Consumer Financial Protection Bureau. That’s up from 13th place in 2015.

Once a niche of the card world, cards with rewards programs have spread throughout the market. But unlike APRs, fees and other core parts of the business, rewards aren’t regulated by consumer protection laws. That leaves rewards subject to a confusing welter of rules and conditions – which card companies are free to change.

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The results are reflected in the kind of complaints received by the CFPB. Among a few examples are cards worth thousands of dollars in travel points that are shut down without notice, rewards points with stealth expiration dates, and cards that are issued to consumers who aren’t eligible to earn the rewards promised. (See “Rewards Cards: common pitfalls and how to avoid them”)

“If you look through a lot of the disclosures, issuers reserve the right to change the program at any time,” said Tiffani Montez, senior analyst at Aite Group, a payments expert. People often choose a card based on the rewards program – as it’s described in marketing material.

HOW TO FILE A CREDIT CARD COMPLAINT

Have a gripe about rewards or another issue customer service can’t fix?

The CFPB receives complaints through:

To file an effective complaint, be prepared:

  • Have materials with account numbers, relevant dates and other data handy.
  • It generally won’t be possible to make another complaint on the same issue. Make sure yours has full information.
  • To back up your case, attach documents such as correspondence with the card issuer and account statements in the web-based complaint form.

Who will oversee your complaint?

The CFPB complaint window can be helpful.
  • Complaints about credit cards result in refunds 21 percent of the time, the CFPB’s data show.
  • Another 11 percent receive “nonmonetary” relief, such as the correction of information on your credit report.
HOW TO FILE A CREDIT CARD COMPLAINT

Have a gripe about rewards or another issue customer service can’t fix?

The CFPB receives complaints through:

To file an effective complaint, be prepared:

  • Have materials with account numbers, relevant dates and other data handy.
  • It generally won’t be possible to make another complaint on the same issue. Make sure yours has full information.
  • To back up your case, attach documents such as correspondence with the card issuer and account statements in the web-based complaint form.

Who will oversee your complaint?

The CFPB complaint window can be helpful.
  • Complaints about credit cards result in refunds 21 percent of the time, the CFPB’s data show.
  • Another 11 percent receive “nonmonetary” relief, such as the correction of information on your credit report.

“It’s not until after you apply that you get all the details about how the program works,” she said.

Rewards cards: Source of complaints, but historically popular
The surge in complaints comes at a moment when the popularity of rewards cards has reached an all-time high.

Reward cards of some type account for about 80 percent of all card spending, the CFPB said in its 2015 report on the consumer credit card market. Rewards used to be reserved for prime credit score applicants, but no longer. According to a study by the American Bankers Association (ABA), rewards cards accounted for 58 percent of cards issued to subprime consumers during the study period in early 2014.

“Rewards programs have gone from commonplace to ubiquitous,” the consumer protection bureau wrote in its report.

Perhaps more importantly, the promise of rewards is often the No. 1 reason for picking a particular card. “For many consumers, rewards have become central to the decision of which credit cards to acquire and how to use them,” the CFPB’s report concluded.

But while we’re choosing and using cards based on rewards, we often don’t know how they really work, the report said. Without access to complete rules, people have a hard time selecting cards that will perform as they expect. In its next report on the card market, expected in the fourth quarter of 2017, the consumer bureau said it will be taking a harder look at programs’ fairness to consumers.

Banks dismiss rewards cards consumer complaints
The bank industry’s largest trade group disputed the notion that people are unhappy with card rewards.

“Rewards are hugely popular – which illustrates the unreliability of this CFPB complaint data,” said Nessa Feddis, ABA’s senior vice president and deputy chief counsel. “No serious analyst can draw conclusions from it.”

Banks say the CFPB complaint data are unfair because the gripes listed are not verified. The CFPB does check that the complaint comes from a customer of the company it is directed against, and listens to the company’s response. But complaints may target practices that companies say are permitted, and still remain on the record.

However, companies can enter their side of the story into CFPB’s online complaint database, although few choose to do so. The complaint records do show when the company pays a refund or makes some nonmonetary form of “relief,” such as correcting your credit report. In 2016, that happened in one-third of credit card complaints, indicating companies took responsibility for cardholders’ beefs.

Few credit card complaints, but many of them involve rewards

The number of complaints filed at the CFPB is small relative to the millions of card holders in the U.S. But few of them know that the complaint system exists, and only use it as a last resort, making the complaint numbers an iceberg-tip indicator of problems in the broader market.

Other measures of card users’ satisfaction confirm there’s significant friction over rewards.

“It is one of the higher problem categories,” said Jim Miller, senior director of banking services at JD Power. Only about 10 percent of all cardholders have a gripe with their card. But among them, rewards are among the top problems, after card fraud and fees. In the analytics company’s poll of credit card users, 19 percent of consumers who had a problem with their card pointed the finger at rewards.

In JD Power’s surveys of consumers in late 2016, the share of people who say they completely understand how to redeem their rewards was 73 percent, down from 79 percent in 2015.

As rewards percolate through the market to lower credit-tier customers, they may be causing more friction, Miller said. Transactors, or people who pay off their balance monthly, have somewhat fewer complaints about rewards than revolvers, or those who carry a balance, he said.

“The transactors may understand better how to earn rewards, how to redeem rewards,” he said, while people with lower spending totals may be disappointed about the rewards they’re able to accumulate.

Despite the friction, the availability of cash back, travel and other rewards is a boon for cardholders. “There’s a lot of competition around rewards,” Miller said. “It’s a great time to be a credit card user, if you can pay off your balance.”

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REWARDS CARDS: COMMON PITFALLS AND HOW TO AVOID THEM

Each rewards card has its own set of rules, with its own potential snags for earning or collecting rewards. Complaints about rewards surged to the U.S. Consumer Financial Protection Bureau (CFPB) in 2016. Based on the bureau’s published complaint database, there are some common pitfalls to watch out for:

Credit card issue How to avoid it
Closed account wipes out points: “My Barclaycard Arrival+ account was shut down without any warning or notice,” a Colorado cardholder said. With the card went points worth $2,100 in travel. “I feel that Barclaycard was deceptive in their advertising practices by allowing me to earn 2 percent back in travel credit, and then closing my account without any notice, thus giving me no opportunity to redeem my points.” The complaint resulted in a refund, and the consumer indicated that their dispute was resolved. As a rule, banks reserve the right to close your account unilaterally. You can redeem rewards as soon as possible after earning them to reduce your exposure. Some cards, such as Discover, are putting guarantees into their reward programs that earned rewards will be paid if the card is closed. Check if your program has such a guarantee.
Surprise expiration of built-up rewards: “When I applied for the (U.S. Bank) card there was no indication that the points would expire in five years,” a Michigan cardholder wrote. She and her husband only found out about the expiration after saving up points for a dream trip for years. “If informed, I could have received $790 cash reward.” The complaint was closed with “nonmonetary relief,” meaning something short of a cash refund, which the consumer disputed. Be aware that points or miles described in the marketing material may not last forever. Furthermore, expiration dates may be imposed after you’ve enrolled in a program. It’s important to stay up to date with the terms by visiting your online account pages, and enrolling in alerts, if available. The largest losses, such as the complaint filed by the Michigan couple, occurred when people didn’t check on the program after enrolling, and rarely or ever logged in to their online account pages.
Cardholder ruled ineligible after-the-fact: “I was mailed a promotional offer to receive (redacted number) Delta Skymiles for opening an account and spending $3,000 over three months,” a California consumer wrote. But after the required spending was met, card issuer American Express denied the rewards. Reason: The cardholder had previously had an AmEx card, violating the deal. “If they knew I was not eligible, they never should have issued the card – or at least let me know upfront.” The complaint was closed with an explanation from the company but no refund or other relief. The consumer disputed the resolution. Just because you received a come-on for a rewards card and your application was approved doesn’t necessarily mean you are eligible for the sign-up bonus. Several card users complained to the CFPB that they were turned away only after meeting the requirements. Get your eligibility confirmed – in writing, if possible – if you’ve had a card from the issuer before as some issuers restrict the number of times you can apply and get rewards from different cards. Verbal statements made by customer service workers may not be reliable, according to the complaint record. If there’s a choice between two offers with similar benefits, avoid the company you had a card from before.
Note: BarclayCard US, U.S. Bank and American Express declined to discuss the consumers’ complaints. Nor did they leave comments in the complaint database giving their side of the story.

See related: How to file a complaint about a credit card issuer


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Updated: 11-23-2017