```

[Federal Register Volume 89, Number 249 (Monday, December 30, 2024)]
[Rules and Regulations]
[Pages 106277-106281]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30988]

[[Page 106277]]

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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Chapter X

Consumer Financial Protection Circular 2024-07: Design, 
Marketing, and Administration of Credit Card Rewards Programs

AGENCY: Consumer Financial Protection Bureau.

ACTION: Consumer financial protection circular.

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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) has 
issued Consumer Financial Protection Circular 2024-07 titled, ``Design, 
marketing, and administration of credit card rewards programs.'' In 
this circular, the CFPB responds to the question, ``Can credit card 
issuers violate the law if they or their rewards partners devalue 
earned rewards or otherwise inhibit consumers from obtaining or 
redeeming promised rewards?''

DATES: The CFPB released this circular on its website on December 18, 
2024.

ADDRESSES: Enforcers, and the broader public, can provide feedback and 
comments to [email protected].

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory 
Implementation & Guidance Program Analyst, Office of Regulations, at 
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION:

Question Presented

    Can credit card issuers violate the law if they or their rewards 
partners devalue earned rewards or otherwise inhibit consumers from 
obtaining or redeeming promised rewards?

Response

    Yes. Covered persons that offer, provide, or operate credit card 
rewards programs, and their service providers, may violate the 
prohibition against unfair, deceptive, or abusive acts or practices in 
a variety of circumstances, including instances where some of the 
conduct in question may be attributable to a third party, such as a 
merchant partner, and regardless of whether covered persons or service 
providers are taking actions consistent with rewards program terms. 
This circular provides some examples where covered persons that offer, 
provide, or operate credit card rewards programs, and their service 
providers, may violate the prohibition against unfair, deceptive, and 
abusive acts or practices, where: (1) the redemption values of rewards 
that consumers have already earned or purchased are devalued; (2) 
consumers' receipt of rewards is revoked, canceled, or prevented based 
on buried or vague conditions, such as criteria disclosed only in fine 
print or up to the operator's discretion; or (3) consumers have reward 
points deducted from their balance without receiving the corresponding 
benefit of the rewards, including due to technical failures when 
redeeming rewards points on merchant partners' systems.

Background on Credit Card Rewards Programs

    Rewards programs are increasingly used to encourage consumers to 
apply for and use specific credit cards.\1\ As of 2019, more than 90 
percent of general purpose credit card spending occurred on rewards 
cards, and by the end of 2022, 75 percent of general purpose credit 
cards were rewards cards.\2\ While rewards cards are more common for 
consumers with higher credit scores, the use of rewards cards is 
growing fastest among deep subprime, subprime, and near-prime 
consumers.\3\ The amount of money or value that consumers earn and 
maintain in credit card rewards programs is also large and has 
increased substantially in recent years. For example, in 2022, 
consumers earned more than $40 billion in rewards from major general-
purpose credit cards, more than a 50 percent increase from 2019.\4\ 
Consumer rewards balances at the end of 2022 were more than $33 
billion, up 40 percent relative to the fourth quarter of 2019.\5\ More 
consumers are also using rewards to make payments, including for day-
to-day purchases and necessary expenses.\6\
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    \1\ See CFPB, The Consumer Credit Card Market (Oct. 2023) 
(hereinafter ``2023 Report'') at 98, https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2023.pdf. An industry survey found that rewards and 
cash back programs were the top reason why consumers chose one card 
over another, as well as the top reason consumers cited for 
increasing spending on credit cards over the last six months. PYMNTS 
and Elan, Credit Card Use During Economic Turbulence (Dec. 2023), 
https://www.pymnts.com/wp-content/uploads/2023/05/PYMNTS-Credit-Card-Use-During-Economic-Turbulence-May-2023.pdf. See also Arielle 
Feger, Cash-back rewards drive consumers to open new credit cards, 
eMarketer (Mar. 26, 2024), https://www.emarketer.com/content/cash-back-rewards-drive-consumers-open-new-credit-cards; Drazen Prelec, 
How credit cards activate the reward center of our brains and drive 
spending, MIT Sloan (June 9, 2021), https://mitsloan.mit.edu/experts/how-credit-cards-activate-reward-center-our-brains-and-drive-spending.
    \2\ 2023 Report at 99. One study also found that between 2021 
and 2023, while total credit card applications decreased by 2 
percent, applications for rewards cards and rewards cards with 
tiered earnings grew by 5 percent and 8 percent, respectively. 
Marketa Canayaz, Consumer Demand for Rich Rewards Rises, Comscore 
(July 17, 2024), https://www.comscore.com/Insights/Blog/Consumer-Demand-for-Rich-Rewards-Rises.
    \3\ 2023 Report at 100. See also Electronic Payments Coalition, 
New Study Shows LMI Households Rely on Credit Card Rewards, 
Electronic Payments Coalition (Apr. 30, 2024), https://electronicpaymentscoalition.org/2024/04/30/new-study-data-shows-credit-card-rewards-are-a-lifeline-for-working-class-americans/. 
Despite the growth in the use of rewards cards among consumers with 
lower credit scores, in many cases, these consumers do not benefit 
from these rewards programs, and research has shown that consumers 
with higher credit scores generally benefit from credit card rewards 
programs at the expense of consumers with lower credit scores. See 
Sumit Agarwal, et al., Who Pays for Your Rewards? Redistribution in 
the Credit Card Market (Dec. 5, 2022), http://dx.doi.org/10.2139/ssrn.4126641.
    \4\ CFPB, Credit Card Rewards (May 2024) (hereinafter ``Credit 
Card Rewards Issue Spotlight'') at 9, https://files.consumerfinance.gov/f/documents/cfpb_credit-card-rewards_issue-spotlight_2024-05.pdf.
    \5\ 2023 Report at 100. Notably, consumers also forfeit about 
$500 million in rewards each year. Id. at 102.
    \6\ See Rimma Kats, Survey Highlights Growing Consumer Appetite 
for Paying with Points, Payments Journal (Jan. 3, 2024), https://www.paymentsjournal.com/survey-highlights-growing-consumer-appetite-for-paying-with-points/ (noting that a majority of consumers favor 
redeeming their points at grocery stores, online retail outlets, and 
at gas stations). See also Chase Survey Reveals How Credit Card 
Rewards Are Enhancing The Holiday Season, Chase Media Center (Nov. 
20, 2023), https://media.chase.com/news/chase-holiday-rewards-survey 
(noting that during the holiday season, 33 percent of consumers 
planned to use rewards to pay for gifts and 25 percent on groceries 
for holiday meals). See, e.g., Bilt, How do I redeem points towards 
a down payment?, https://support.biltrewards.com/hc/en-us/articles/10377953401869-How-do-I-redeem-points-towards-a-down-payment.
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    Credit card rewards programs are typically structured around 
earning rewards ``currencies''--most commonly ``miles'' or other units 
of value issued by a co-brand partner (such as an airline or 
hospitality chain) or, alternatively, a credit card issuer's own 
``points.'' \7\ Consumers typically earn miles or points through credit 
card spending or by directly purchasing them in accordance with pre-
determined formulas, or ``earn rates.'' \8\ Many issuers also offer 
promotional rewards through things like sign-up bonuses and 
referrals.\9\
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    \7\ See Agarwal supra note 4, at 8. In 2021, more than one in 
three general purpose credit cards offered were co-branded. See 2023 
Report at 25. In addition to rewards currencies and cash back, 
rewards programs also increasingly offer other affiliated benefits 
or lifestyle rewards, such as access to airport lounges and priority 
boarding. Credit Card Rewards Issue Spotlight at 8.
    \8\ See CFPB, The Consumer Credit Card Market at 212-13 (Dec. 
2015), http://files.consumerfinance.gov/f/201512_cfpb_report-the-consumer-credit-card-market.pdf.
    \9\ See id. at 213.
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    Once earned or purchased by consumers, points can be redeemed for 
rewards like ``cash back'' (statement

[[Page 106278]]

credits or direct deposits) or transfers to a co-brand or merchant 
partner (e.g., miles or merchant-specific gift cards), and also for 
other types of goods or services, like buying merchandise, donating to 
charities, applying to purchases at check out, and others.\10\ However, 
both credit card issuers and loyalty programs generally reserve, and 
often assert a right to, unilaterally change the value of rewards, 
including at the point of redemption.\11\ Reward points or miles 
valuation changes can sometimes be tied to price changes in the 
underlying product or service for which the reward is being redeemed 
(e.g., changes in flight pricing), but program operators also adjust 
rewards redemption rates distinct from underlying prices, apparently as 
a means to ``preserve'' or ``maintain'' profit margins.\12\
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    \10\ Credit Card Rewards Issue Spotlight, supra note 4, at 7. 
Both quantitative and qualitative evidence indicate consumers spend 
across months or years to earn sufficient points or miles for 
infrequent large purchases. See, e.g., id. at 15; 2023 Report at 
100.
    \11\ See, e.g., American Express, Membership Rewards Program 
Terms and Conditions, https://rewards.americanexpress.com/myca/loyalty/us/catalog/tandc (last accessed Sept. 4, 2024); Citi, Citi 
ThankYou Rewards Terms & Conditions, https://www.thankyou.com/cms/thankyou/tc.page?pageName=tc (last accessed Sept. 4, 2024); Chase, 
Chase Sapphire Preferred[supreg] with Ultimate Rewards[supreg] 
Program Agreement, https://www.chase.com/sapphire/rewardsagreement 
(last accessed Sept. 4, 2024); Wells Fargo, Wells Fargo 
Rewards[supreg] Program Terms and Conditions and Addendum, https://consumercard.wellsfargorewards.com/#/tnc (last accessed Sept. 4, 
2024); Southwest, What are the Rapid Rewards Rules and Regulations, 
https://support.southwest.com/helpcenter/s/article/rapid-rewards-rules-and-regulations (last accessed Sept. 4, 2024) Emily McNutt, 
Delta is making it more expensive to earn elite status--here's how 
you can bypass the new requirements, CNN (Aug. 28, 2023), https://www.cnn.com/cnn-underscored/travel/delta-airlines-status-requirements-update; Sean Cudahy, Alaska Airlines raises lounge 
membership prices, tightens access, The Points Guy (Nov. 9, 2023), 
https://thepointsguy.com/news/alaska-lounge-restrictions/; Zach 
Griff, Why United's increased status thresholds might not be as bad 
as they seem, The Points Guy (Nov. 11, 2022), https://thepointsguy.com/news/united-premier-changes-not-so-bad/.
    \12\ See, e.g., United Airlines, MileagePlus Investor 
Presentation, at 23 (June 15, 2020) (MileagePlus program can 
``adjust[ ] award pricing based on expected foregone revenue for 
United''), https://ir.united.com/static-files/1c0f0c79-23ca-4fd2-80c1-cf975348bab9; Delta Airlines, Delta Air Lines SkyMiles Investor 
Presentation, at 17 (Sept. 14, 2020) (dynamic pricing model of 
SkyMiles rewards program allows ``flexibility to control costs and 
preserve margins''), https://www.sec.gov/Archives/edgar/data/27904/000119312520244688/d27099dex991.htm; American Airlines, American 
Airlines AAdvantage Investor Presentation, at 22, 35 (Mar. 2021) 
(AAdvantage ``control[s] the `exchange rate' between miles and 
dollars,'' which provides flexibility to ``manage costs'' and 
``steer reward demand to optimal flights based on cash displacement 
risk.''), https://www.sec.gov/Archives/edgar/data/6201/000000620121000022/aainvestorpresentation.htm.
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    As the market for credit card rewards programs has grown, so too 
has their complexity.\13\ Rewards program operators often assert their 
ability to unilaterally modify credit card rewards programs, which has 
caused at least one State to take action to provide consumers with 
additional protections against such unilateral program 
modifications.\14\ Additionally, the number of consumer complaints that 
the CFPB receives about credit card rewards programs has also risen 
dramatically in recent years.\15\ Many consumers' complaints describe 
how the marketing or initial offering of a rewards program is 
inconsistent with their actual, later experiences earning and redeeming 
credit card rewards. For instance, consumers have complained to the 
CFPB about companies devaluing their rewards relative to what they were 
marketed, or increasing barriers to redeeming cash or cash-equivalent 
rewards, such as eliminating the ability for consumers to redeem points 
for a statement credit.\16\
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    \13\ See Jamie Lauren Keiles, The Man Who Turned Credit-Card 
Points Into an Empire, The New York Times (Jan. 5, 2021), https://www.nytimes.com/2021/01/05/magazine/points-guy-travel-rewards.html 
(how ``as rewards programs have multiplied, the earned point has 
grown increasingly complex and fungible''); Credit Card Rewards 
Issue Spotlight, supra note 4, at 6.
    \14\ See Credit Card Rewards Issue Spotlight, supra note 4, at 
11, 20; New York General Business Law Sec.  520-e (2023).
    \15\ In 2023, there was a more than 70 percent increase in 
complaints involving credit card rewards over pre-pandemic levels. 
Credit Card Rewards Issue Spotlight, supra note 4, at 2.
    \16\ See, e.g., id. at 15, 16.
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    Consumers have also complained about being denied access to 
promotional or other rewards because of terms or other requirements 
hidden in their cardholder or rewards program agreements, including 
instances of unexpectedly being found ineligible after applying for a 
credit card \17\ or being forced to return a promotional offer because 
they closed their account within a certain period.\18\ For many of 
these types of complaints, companies and merchant partners justified 
revoking, canceling, or preventing consumer access to rewards through 
requirements and guidelines absent from their marketing materials and 
only found buried in their cardholder or rewards program agreements.
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    \17\ See, e.g., id. at 13.
    \18\ See, e.g., id. at 15.
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    Consumers have also repeatedly alerted the CFPB about difficulties 
redeeming their rewards or inexplicably seeing their points disappear. 
These reported challenges include issues with customer service,\19\ 
technical failures,\20\ and dispute resolution,\21\ all of which can be 
further compounded when neither the issuer nor its merchant partner 
accept responsibility and both refer consumers to the other.\22\ 
Because of these issues, some consumers have seen their rewards 
disappear when being transferred or applied to a merchant partner, with 
little recourse to resolve such problems.\23\
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    \19\ See, e.g., id. at 17.
    \20\ See, e.g., id. at 18.
    \21\ See, e.g., id.
    \22\ See, e.g., id.
    \23\ See, e.g., id. at 19.
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Analysis

    The CFPA prohibits any ``covered person'' or ``service provider'' 
from ``committing or engaging in an unfair, deceptive, or abusive act 
or practice under Federal law in connection with . . . the offering of 
a consumer financial product or service.'' \24\ An act or practice is 
unfair when: (1) it causes or is likely to cause substantial injury to 
consumers that is not reasonably avoidable by consumers and (2) such 
injury is not outweighed by countervailing benefits to consumers or to 
competition.\25\ Substantial injury includes monetary harm, and may be 
based on likely rather than actual injury.\26\ In general, an injury is 
not reasonably avoidable if consumers cannot reasonably anticipate the 
injury, or when there is no way to avoid the injury even if it is 
anticipated.\27\
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    \24\ 12 U.S.C. 5531(a); see also 12 U.S.C. 5536(a)(1)(B).
    \25\ 12 U.S.C. 5531(c)(1).
    \26\ See, e.g., FTC v. Wyndham Worldwide Corp., 799 F.3d 236, 
246 (3d Cir. 2015).
    \27\ See FTC v. Neovi, Inc., 604 F.3d 1150, 1158 (9th Cir. 2010) 
(interpreting whether consumer's injuries were reasonably avoidable 
under the FTC Act); Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 
1365-66 (11th Cir. 1988) (same); Am. Fin. Servs. Ass'n v. FTC, 767 
F.2d 957, 976 (D.C. Cir. 1985) (same).
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    Under the CFPA, a representation, omission, or practice is 
deceptive if it is likely to mislead a reasonable consumer and is 
material.\28\ Representations, omissions, or practices are ``material'' 
if they ``involve[ ] information that is important to consumers and, 
hence, likely to affect their choice of, or conduct regarding, a 
product.'' \29\ In assessing the meaning of a communication, the CFPB 
looks to its overall, net impression; in other words, the CFPB 
considers the entire advertisement, transaction, or course of dealing 
rather than evaluating

[[Page 106279]]

statements in isolation.\30\ A misrepresentation can be ``an express or 
implied statement [that is] contrary to fact.'' \31\ It may also be 
deceptive, for example, when a seller partially discloses information 
about the nature of a product or service, but fails to disclose other 
material information.\32\ Further, ``[w]ritten disclosures or fine 
print may be insufficient to correct a misleading representation.'' 
\33\
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    \28\ See CFPB v. Gordon, 819 F.3d 1179, 1192-93 (9th Cir. 2016).
    \29\ Novartis Corp. v. FTC, 223 F.3d 783, 786 (D.C. Cir. 2000) 
(quoting In re Cliffdale Assocs., Inc., 103 FTC 110, 165 (1984)).
    \30\ See, e.g., CFPB v. Aria, 54 F.4th 1168, 1173 (9th Cir. 
2022); Gordon, 819 F.3d at 1193; FTC v. E.M.A. Nationwide, Inc., 767 
F.3d 611, 631 (6th Cir. 2014); Fanning v. FTC, 821 F.3d 164, 170 
(1st Cir. 2016).
    \31\ FTC, Policy Statement on Deception (Oct. 14, 1983).
    \32\ See, e.g., Sterling Drug, Inc. v. FTC, 741 F.2d 1146, 1154 
(9th Cir. 1984) (advertisements referring to ``unique formula'' were 
deceptive because they could lead consumers to infer that pain 
reliever's formulation was something other than ordinary aspirin); 
see also FTC v. Bay Area Business Council, Inc., 423 F.3d 627, 635 
(7th Cir. 2005) (``[T]the omission of a material fact, without an 
affirmative misrepresentation, may give rise to an FTC Act 
violation.'').
    \33\ FTC, Policy Statement on Deception (Oct. 14, 1983).
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    Rewards programs are a feature common to many credit cards, and 
tend to both be prominently marketed by issuers and widely used by 
consumers.\34\ Credit card rewards programs also play a major role in 
consumer's choices on which cards to apply for and use for any given 
transaction.\35\
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    \34\ In 2022, rewards card spending was 90 percent of all 
consumer spending on general purpose credit cards. CFPB, The 
Consumer Credit Card Market, at 99 (Oct. 2023), https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2023.pdf. See also Background on Credit Card Rewards 
Programs, supra.
    \35\ Id. at 98. Because credit card rewards programs are offered 
or provided ``in connection'' with a consumer financial product or 
service (the extension of credit to consumers), the ``covered 
persons'' or ``service providers'' who offer, provide, or support 
such programs (hereinafter ``rewards program operators'') must 
comply with the CFPA, including its prohibitions against unfair, 
deceptive or abusive acts or practices, as well as other applicable 
consumer financial protection laws. In the typical case, a credit 
card issuer providing the rewards program would be a ``covered 
person,'' while ``service providers'' could include the partners or 
vendors that provide material services on the rewards program in 
connection with the credit card program, such as co-brand or 
merchant partners that deliver applicable rewards, or vendors who 
operate the key infrastructure or platforms for consumers to view, 
manage, and use their rewards earnings. See 12 U.S.C. 5481(6), 
5481(26)(A).
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    The CFPB is issuing this circular to underscore that the CFPA's 
prohibition on unfair or deceptive acts or practices applies to the 
design, marketing, and administration of credit card rewards 
programs.\36\ Rewards program operators may violate this prohibition in 
a variety of circumstances regardless of whether they are taking 
actions consistent with rewards program terms. In particular, rewards 
program operators risk committing unfair or deceptive acts or practices 
when (1) rewards that consumers have already earned are devalued; (2) 
consumers' receipt of rewards is revoked, cancelled, or prevented based 
on buried or vague conditions; and (3) rewards points are deducted 
without consumers receiving the corresponding benefit of the rewards. 
These examples are illustrative and non-exhaustive.
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    \36\ While not specifically discussed in this circular, rewards 
program operators must also comply with the CFPA's prohibition on 
abusive acts or practices, 12 U.S.C. 5531(d), which provides that an 
act or practice is abusive if it (1) materially interferes with a 
consumer's ability to understand a term or condition of a consumer 
financial product or service or (2) takes unreasonable advantage of 
the consumer's (a) lack of understanding of the material risks, 
costs, or conditions of the product or service; (b) inability to 
protect their interests in selecting or using a consumer financial 
product or service; or (c) reasonable reliance on a covered person 
to act in the consumer's interests.
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    As described further below, the CFPB emphasizes that covered 
persons that offer, provide, or operate credit card rewards programs 
may be liable for an unfair or deceptive act or practice where some of 
the conduct in question may be attributable to a third party or service 
provider, such as a merchant partner.\37\
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    \37\ See, e.g., CFPB v. Ocwen Fin. Corp., No. 17-80495-CIV, 2019 
WL 13203853 at *30 (S.D. Fla. Sept. 5, 2019) (finding that the CFPB 
sufficiently alleged CFPA violations regarding add-on products even 
where add-on vendor was responsible for enrolling borrowers to such 
add-on products); see also, e.g., FTC v. Bay Area Bus. Council, 
Inc., 423 F.3d at 630) (affirming district court ruling that 
multiple interrelated corporate and individual defendants were 
liable under section 5 of FTC Act for deceptive telemarketing 
scheme); FTC v. Neovi, Inc., 604 F.3d 1150, 1155 (9th Cir. 2010) 
(``a single violation of the [FTC] Act may have more than one 
perpetrator'') (citing Bay Area).
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Devaluation of Rewards Already Earned or Purchased

    Rewards program operators may commit an unfair or deceptive act or 
practice when they materially reduce the overall value of rewards that 
consumers have already earned or purchased. Consumers make decisions on 
whether to open or use a credit card based on the explicit and implicit 
representations about the value of card benefits and rewards. For 
instance, consumers' reasonable expectations about the value of rewards 
may be informed by advertisements at account opening, as well as by 
redemption values of rewards communicated to consumers on or around the 
time the consumer makes decisions to purchase goods with the card and 
accrue rewards benefits. Furthermore, fine print disclaimers or 
contract terms stating that rewards program operators have the right to 
adjust rewards offerings often will not be sufficient to correct 
consumers' net impression about the expected value of rewards.
    When rewards operators influence consumers' expectations about the 
value of rewards in their product or marketing efforts (e.g., to 
support customer acquisition, retention, or increased purchase volume), 
but later make decisions to deflate the overall value of accrued 
rewards, they may have engaged in actions that resemble a traditional 
``bait-and-switch'' scheme.\38\ These activities may constitute unfair 
or deceptive acts or practices under the CFPA.\39\
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    \38\ See 16 CFR 238 et seq., FTC Guides Against Bait 
Advertising. Cf. Rossman v. Fleet Card (R.I.) Nat. Ass'n, 280 F.3d 
384, 396-400 (3d Cir. 2002) (credit card issuer soliciting business 
with no-annual-fee offer while intending to later impose fee 
constitutes a bait-and-switch scheme).
    \39\ Cf. 24. FR 9755 (Dec. 4, 1959) (noting that FTC enforcement 
actions with respect to bait-and-switch schemes are brought under 
the FTC Act's prohibition on ``unfair or deceptive acts or 
practices''); 32 FR 15540 (Nov. 8, 1967) (similar); Synopsis of 
Federal Trade Commission Decisions Concerning ``Bait and Switch'' 
Sales Practices (Sept. 23, 1975) (``The Federal Trade Commission has 
determined that `bait and switch' practices are unfair or deceptive 
trade practices and are unlawful under Section 5(a)(1) of Federal 
Trade Commission Act.''), https://www.ftc.gov/system/files/ftc_gov/pdf/NOPO-Bait-and-Switch.pdf.
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    Enforcers investigating potentially unfair or deceptive acts or 
practice should consider a variety of different devaluation tactics by 
rewards program operators. Unfair or deceptive devaluations are easier 
to detect when the rewards program involves simple, fixed redemption 
rates with one retailer or merchant partner. But such schemes may be 
harder to detect where there are numerous potential rewards available 
or rewards program operators implement more complex program changes. 
For example, if a rewards program operator uses dynamic pricing for 
rewards redemptions, enforcers can examine whether the firm is unfairly 
or deceptively devaluing points over time by considering, for example, 
whether the dynamic prices in points have increased, in aggregate, 
relative to dynamic cash prices for the same products or services. 
Similarly, if a rewards program includes redemption options from 
multiple participating merchant partners, and the rewards program 
operator loses a major merchant partner or a major partner materially 
downgrades the service provided, enforcers can look to whether the 
rewards program operator is taking reasonable measures to generally 
maintain the value of rewards, such as by increasing points usable at 
other merchant partners, allowing customers to cash out points, 
replacing lost rewards with other rewards, or by other

[[Page 106280]]

means. Additionally, when two firms merge, resulting in a conversion of 
one firm's customers into a new rewards program, enforcers can look at 
whether the resulting firm took actions to convert customers' points to 
the new system without a reduction in points value.\40\
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    \40\ See, e.g., U.S. DOT, USDOT Requires Alaska and Hawaiian 
Airlines to Preserve Rewards Value, Critical Flight Service as 
Merger Moves Forward (Sept. 2024), https://www.transportation.gov/briefing-room/usdot-requires-alaska-and-hawaiian-airlines-preserve-rewards-value-critical-flight (in connection with regulatory merger 
approvals, Department of Transportation imposed ``rewards 
protections against devaluation,'' including requiring each earned 
loyalty program be converted to new program miles at 1:1 ratio and 
prohibiting ``any actions that would devalue HawaiianMiles miles''). 
The merger approval and requirements were based on ``[p]ublic 
interest criteria [that] include preventing unfair, deceptive, 
predatory or anticompetitive practices. . . .'' Id.
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    In any investigation into whether a rewards program operator has 
engaged in an unfair or deceptive devaluation scheme, enforcers are 
encouraged to collect and consider accounting or other metrics 
maintained by program operators or others regarding rewards values. For 
example, many companies maintain internal figures on the dollar value 
of outstanding rewards for accounting purposes, including an estimated 
cost-per-point or weighted average redemption cost.\41\ If a firm's 
cost-per-point or weighted average redemption cost decreases over time, 
that could suggest a firm has engaged in a bait-and-switch or similar 
unfair or deceptive act or practice.
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    \41\ See, e.g., Capital One Financial Corporation, Annual Report 
(Form 10-K) (Feb. 24, 2023) (``We use the weighted-average 
redemption cost during the previous twelve months, adjusted as 
appropriate for recent changes in redemption costs, . . . to 
estimate future redemption costs.''). Similarly, informational 
websites aimed at consumers may also estimate rewards point values. 
See, e.g., The Points Guy, TPG launches new data-driven valuations 
for 6 major US airlines--and updates methodology for credit card 
currencies (Sept. 8, 2023), https://thepointsguy.com/news/new-data-driven-valuations/.
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    The CFPB emphasizes that covered persons that offer, provide, or 
operate credit card rewards programs may be liable for an unfair or 
deceptive act or practice even when the material devaluation of rewards 
could arguably be attributed to the actions of a third party. In other 
words, if a covered person that offers, provides, or operates a credit 
card rewards program makes explicit or implicit representations about, 
and thereby induces consumer expectations regarding, the value of the 
card benefits or rewards, and the value of those benefits or rewards is 
subsequently materially reduced by actions that may be attributable to 
the covered person's merchant partner, the covered person may be liable 
for an unfair or deceptive act or practice.

Hidden Conditions

    Rewards program operators also risk committing unfair or deceptive 
acts or practices when they revoke or cancel rewards, or prevent the 
award of rewards, based on buried or vague conditions.\42\ Rewards 
programs have become increasingly complex, with lengthy terms and 
unintuitive restrictions that consumers may not be aware of as they use 
their credit cards day to day. These lengthy terms may use buried or 
vague conditions set by rewards program operators that are non-
negotiable and may not be consistent with prominent promotional 
language advertising the rewards that consumers can earn. As noted 
above, consumer complaints received by the CFPB suggest that, despite 
descriptions in the fine print of rewards program terms, consumers 
often do not understand the basis of many rewards forfeitures or 
denials.
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    \42\ Additionally, rewards program terms that include unlawful 
or unenforceable conditions may violate the CFPA's prohibition on 
deceptive acts or practices. CFPB Circular 2024-03, Unlawful and 
unenforceable contract terms and conditions (June 2024), https://www.consumerfinance.gov/compliance/circulars/consumer-financial-protection-circular-2024-03/. For example, the recently enacted New 
York statute referenced above may render certain terms in rewards 
program deceptive with respect to New York residents.
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    The following are illustrative examples of potentially unfair 
rewards program practices:
     Revoking or canceling rewards based on vague catch-all 
language in program terms, such as ``gaming'' or ``abuse.'' This can be 
especially problematic when those terms are also subject to the rewards 
program operator's discretion.\43\
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    \43\ See Credit Card Rewards Issue Spotlight, supra note 4, at 
14.
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     Revoking previously earned rewards based on policies that 
tie revocation to actions that are not within the consumer's control 
and do not constitute fraud or misconduct by the consumer, like an 
issuer unilaterally closing an account.\44\
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    \44\ Id. at 20.
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     Promotional ``sign-up'' offers that are denied based on 
hidden conditions that consumers were not reasonably aware of, such as 
``churning'' conditions that restrict how frequently a consumer can 
earn sign-up rewards, time periods to earn rewards that are effectively 
shortened by the hidden and unavoidable period of time needed to 
receive and activate a card, or promotional offers that are unavailable 
for applicants through certain channels.
    These sorts of dark patterns and fine print will often constitute 
deceptive representations, omissions, or practices about material 
concerns, and thus violate the prohibition on deceptive practices.\45\ 
In addition, denying or preventing rewards based on buried or vague 
terms could cause a substantial monetary injury in the form of lost 
rewards value and may be unfair.\46\ These injuries may not be 
reasonably avoidable by consumers where conditions are buried or vague, 
and accordingly hinder consumers' ability to make a ``free and informed 
choice.'' \47\ Specifically, consumers cannot reasonably avoid injuries 
where they are not ``adequately informed'' of key conditions or 
presented such information in a confusing way.\48\ As noted above, 
rewards program operators typically promote most prominently the 
availability of rewards, even more so than other key credit card terms, 
such as APR or annual fees, while putting conditions around rewards in 
fine print.\49\ Consumers may not understand the restrictive 
eligibility criteria buried in the fine print where program operators 
send marketing materials that target rewards promotions to the specific 
consumers.\50\ Similarly, a consumer may be confused by the way a 
rewards program operator interprets vague catch-all language, such as 
terms restricting rewards based on impermissible ``gaming'' or 
``abuse,''

[[Page 106281]]

when those interpretations conflict with prominent promotional language 
or other representations.\51\ There are no countervailing benefits that 
outweigh the injury to consumers or competition of inducing consumers 
to use credit cards with vague or fine-print conditions that consumers 
cannot reasonably understand.\52\
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    \45\ See FTC, Bringing Dark Patterns to Light, at 7 (Sept. 2022) 
(``Some dark patterns operate by hiding or obscuring material 
information from consumers, such as burying key limitations of the 
product or service in dense Terms of Service documents that 
consumers don't see before purchase.''), https://www.ftc.gov/system/files/ftc_gov/pdf/P214800%20Dark%20Patterns%20Report%209.14.2022%20-%20FINAL.pdf. Cf. FTC v. Amazon.com, 2024 WL 2723812 at *1 (W.D. 
Wash. 2024) (denying motion to dismiss of claims brought under 
Section 5 of the FTC Act and the Restore Online Shoppers' Confidence 
Act based on defendants ``trick[ing], coerc[ing], and manipulat[ing] 
consumers . . . by failing to disclose the material terms of the 
subscription clearly and conspicuously and by failing to obtain 
consumers' informed consent before enrolling them''); FTC v. 
Publishers Clearing House LLC, No. 23-CV-4735 (E.D.N.Y. June 6, 
2023) (complaint) (alleging defendant ``employs dark patterns 
throughout the consumer's experience by, among other things . . . 
placing disclosures in small and light font and in places where a 
consumer is unlikely to see them'').
    \46\ CFPB research suggests consumers lose hundreds of millions 
of dollars in earned rewards each year. 2023 Report, at 102.
    \47\ See FTC v. Neovi, 604 F.3d at 1158; Am. Fin. Servs. Ass'n 
v. FTC, 767 F.2d at 976.
    \48\ See, e.g., FTC v. Commerce Planet, Inc., 878 F. Supp. 2d 
1048, 1079 (C.D. Cal. 2012) (consumers could not reasonably avoid 
injury where sign-up pages did not adequately disclose negative 
option plan by burying in separate fine print disclosures).
    \49\ Credit Card Rewards Issue Spotlight, supra note 4, at 4, 
11.
    \50\ Id. at 12-13.
    \51\ For instance, consumer complaints indicate rewards program 
operators may interpret as impermissible ``gaming'' or ``churning'' 
consumer card usage behaviors that are otherwise permissible under 
cardholder agreements and satisfy objective sign-up promotion 
criteria, such as closing an account after spending the required 
amount for a promotional rewards bonus. See id. at 14.
    \52\ Notably, as with devaluation, the rewards program operators 
have already benefitted from the consumer spending on the relevant 
card by the time they deny the rewards benefits.
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Inability To Redeem Rewards

    Rewards program operators can also commit unfair or deceptive acts 
or practices when their customers lose their points because redemption 
procedures do not function properly. In offering rewards programs, 
operators make representations to consumers about how rewards can be 
redeemed, often developing online interfaces for consumers to use to 
redeem rewards. A rewards program operator is accordingly responsible 
for administering the rewards program it offers, including coordinating 
with its merchant partners or vendors, so that consumers can redeem the 
rewards that they have earned and selected in accordance with the 
rewards program.\53\
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    \53\ Cf. In re UniRush and Mastercard Int'l Inc., No. 2017-CFPB-
0010 (Feb. 1, 2017) (consent order) (finding that failures to 
adequately test and administer prepaid card program conversion were 
unfair acts or practices), https://files.consumerfinance.gov/f/documents/201702_cfpb_UniRush-Mastercard-consent-order.pdf. See also 
CFPB v. Ocwen Financial Corp., No. 17-80495-CIV, 2019 WL 13203853 at 
*30 (S.D. Fla. Sept. 5, 2019) (finding that the CFPB sufficiently 
alleged CFPA violations regarding add-on products even where add-on 
vendor was responsible for enrolling borrowers to such add-on 
products); see also, e.g., FTC v. Bay Area Bus. Council, Inc., 423 
F.3d at 630 (affirming district court ruling that multiple 
interrelated corporate and individual defendants were liable under 
section 5 of FTC Act for deceptive telemarketing scheme); FTC v. 
Neovi, 604 F.3d at 1155 (``a single violation of the [FTC] Act may 
have more than one perpetrator'') (citing Bay Area).
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    If systems failures result in consumers losing points when 
attempting to redeem, it may result in a deceptive practice because 
consumers would typically have a basis to reasonably believe they were 
purchasing products or services with their points, which would be false 
as a result of the failure. It would likely also be unfair because 
consumers would incur injury as a result of the loss of rewards, with 
no ability to avoid the harm and no countervailing benefits that 
outweigh the injury. Even if a rewards program operator ultimately 
refunds unredeemed points to a consumer, the consumer may be harmed by 
the consumer's inability to redeem points in the interim,\54\ and often 
consumers end up expending significant time and resources trying to 
obtain the refund.\55\ Consumers cannot reasonably avoid these harms as 
they do not have control over operators' rewards program 
administration, including procedures for redeeming points or converting 
them for use with co-brand or merchant partners.
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    \54\ See Credit Card Rewards Issue Spotlight, supra note 4, at 
19 (``the ultimate value to consumers [of converting rewards points 
to miles or hotel points] depends on a quick and accurate 
conversion'').
    \55\ See id. at 17 (complaints received by CFPB indicate 
consumers spend time trying to resolve rewards issues through 
``repeated calls, hours on hold, and thorough documentation of the 
problem at hand'').
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    Again, the CFPB emphasizes that covered persons that offer, 
provide, or operate credit card rewards programs may commit an unfair 
or deceptive act or practice when the loss of points due to failures of 
redemption procedures could arguably be attributed to a merchant 
partner or service provider. For instance, a covered person may be 
liable for an unfair or deceptive act or practice when a consumer 
attempts to transfer rewards points from the online portal of such 
covered person to the points portal of a merchant partner (e.g., 
requests a ``conversion'' of credit card rewards points to points at a 
travel partner), but technical failures on the merchant partner's 
system result in the consumer losing the points.

About Consumer Financial Protection Circulars

    Consumer Financial Protection Circulars are issued to all parties 
with authority to enforce Federal consumer financial law. The CFPB is 
the principal Federal regulator responsible for administering Federal 
consumer financial law, see 12 U.S.C. 5511, including the Consumer 
Financial Protection Act's prohibition on unfair, deceptive, and 
abusive acts or practices, 12 U.S.C. 5536(a)(1)(B), and 18 other 
``enumerated consumer laws,'' 12 U.S.C. 5481(12). However, these laws 
are also enforced by State attorneys general and State regulators, 12 
U.S.C. 5552, and prudential regulators including the Federal Deposit 
Insurance Corporation, the Office of the Comptroller of the Currency, 
the Board of Governors of the Federal Reserve System, and the National 
Credit Union Administration. See, e.g., 12 U.S.C. 5516(d), 5581(c)(2) 
(exclusive enforcement authority for banks and credit unions with $10 
billion or less in assets). Some Federal consumer financial laws are 
also enforceable by other Federal agencies, including the Department of 
Justice and the Federal Trade Commission, the Farm Credit 
Administration, the Department of Transportation, and the Department of 
Agriculture. In addition, some of these laws provide for private 
enforcement.
    Consumer Financial Protection Circulars are intended to promote 
consistency in approach across the various enforcement agencies and 
parties, pursuant to the CFPB's statutory objective to ensure Federal 
consumer financial law is enforced consistently. 12 U.S.C. 5511(b)(4).
    Consumer Financial Protection Circulars are also intended to 
provide transparency to partner agencies regarding the CFPB's intended 
approach when cooperating in enforcement actions. See, e.g., 12 U.S.C. 
5552(b) (consultation with CFPB by State attorneys general and 
regulators); 12 U.S.C. 5562(a) (joint investigatory work between CFPB 
and other agencies).
    Consumer Financial Protection Circulars are general statements of 
policy under the Administrative Procedure Act. 5 U.S.C. 553(b). They 
provide background information about applicable law, articulate 
considerations relevant to the Bureau's exercise of its authorities, 
and, in the interest of maintaining consistency, advise other parties 
with authority to enforce Federal consumer financial law. They do not 
restrict the Bureau's exercise of its authorities, impose any legal 
requirements on external parties, or create or confer any rights on 
external parties that could be enforceable in any administrative or 
civil proceeding. The CFPB Director is instructing CFPB staff as 
described herein, and the CFPB will then make final decisions on 
individual matters based on an assessment of the factual record, 
applicable law, and factors relevant to prosecutorial discretion.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-30988 Filed 12-27-24; 8:45 am]
BILLING CODE 4810-AM-P
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