We have all been there at least once before before. We use our credit card a couple of times during the month and when we receive our monthly statement we are surprised to find a fee that we didn’t know even existed. These fees are now being warned about by one top United States regulator.
Consumer Financial Protection Bureau (CFPB) Director Richard Cordray provided a tough warning to credit card companies Wednesday stating that some companies are misinforming and misleading their customers about hidden fees that are a part of various promotional offers, like low-interest or balance transfers.
Although Cordray did not confirm his agency will seek out those offending parties, he did aver that slapping customers with shocking fees is illegal. Cordray urged credit card companies to clearly reveal their terms and how these promotional offers work – the bureau did not name any credit card companies.
One example cited by the CFPB is in regards to a balance transfer. With these types of deals, a consumer is charged a fee to transfer a balance or is required to purchase something to receive a lower interest. The problem that regulators have is that consumers may not be informed about how additional purchases may lead to interest immediately.
It was noted by Reuters that new federal rules limit the kinds of fees credit card companies can charge their customers. Therefore, these firms are attempting to find other sources of income and bring on additional clients, hence the array of promotional offers.
“The Bureau believes some companies’ marketing materials do not clearly disclose that consumers must pay off the promotional balance by their due date to avoid racking up unexpected interest charges on routine purchases for which they were not charged interest previously,” the CFPB said in a statement. “For some consumers, these surprise charges can make the cost of transferring a balance more expensive than revolving the same balance on their existing card.”
The banking industry responded to the CFPB’s stern statement and welcomed the warning.
“Providing clear and transparent disclosures so customers are fully informed is one of our industry’s top priorities,” said Nessa Feddis, senior vice president of the American Bankers Association (ABA), in a statement. “Federal regulations require — and banks ensure — that consumers receive four highlighted notices indicating they will lose the grace period on new purchases if they don’t pay their balance in full.”
Furthermore, LowCards.com listed a number of factors to consider regarding balance transfers. Some of these included a credit score reduction, introductory rates not being permanent and the new card’s limit may not cover all of a consumer’s current debt.
Last year, the CFPB published a report that recommended consumers to incorporate a number of tips that would help them avoid paying surprising fees and interest, such as steering clear of carrying a balance, making payments on time and comparing interest rates between credit cards.
We reported last month that CreditCards.com warned consumers about not signing up for any retail credit cards because of the exorbitant interest rates that are often associated with these types of cards. The website’s report discovered that the average retail credit card comes with a 23.23 percent APR, more than double the rate of non-retail cards of 10.37 percent.