The Consumer Financial Protection Bureau (CFPB) recently issued an "Issue Spotlight" report on credit card reward programs. The Spotlight starts off by noting that in 2023, the CFPB received over 1,200 complaints involving credit card rewards, a more than 70 percent increase over pre-pandemic levels. While the report is specific to credit card reward programs – and the CFPB's purview concerns federal consumer financial laws – the Spotlight highlights issues that are relevant to loyalty programs of all kinds, not just those sponsored by credit card companies. Therefore, reward and loyalty program sponsors of all kinds should take note.
The Spotlight identifies four recurring themes in the complaints it received:
- Consumers failing to receive rewards because of vague or hidden conditions in the programs: here, the Spotlight highlights the problem of requirements detailed in the fine print of rewards programs' terms and conditions not matching what's in the marketing materials. As a result, according to the CFPB, marketers are engaging in a "bait and switch."
- Consumers losing benefits that they've earned due to devaluation of rewards: the Spotlight notes that issuers (sometimes at the behest of merchant partners) often increase the number of points or miles a cardholder might need to redeem a reward during the course of the program.
- Consumers facing obstacles in receiving their preferred rewards due to delays by the issuer in resolving disputes: here, the Spotlight highlights customer service issues and technical glitches that block or delay consumers' reward redemptions, and the "doom loop" consumers get stuck in, bouncing back and forth between the bank and the merchant partner.
- Consumers losing rewards when issuers unilaterally revoke previously earned balances: the Spotlight notes that consumers complained about losing their points, cash back, and miles when they closed their accounts and that sometimes the financial institutions revoked rewards even on open accounts through their expiration policies, often without notice.
The Spotlight thus highlights several of the major issues all companies should keep in mind when structuring and implementing a reward program, especially reward programs that require purchases by customers to earn rewards. First, the program terms must clearly and conspicuously disclose the material terms and conditions of the program, which will typically include (i) how someone earns rewards, (ii) what the rewards are, (iii) whether there is a deadline to complete the requisite actions to earn a reward, and (iv) if and when the rewards expire.
In addition to ensuring that the program terms are clear, companies should also review their advertising materials that tout the program with care to ensure that the materials clearly describe the program requirements. Companies should also be confident that their reward programs allow most consumers to actually obtain the rewards offered and to redeem them within the expiration window, if any.
Finally, while the terms should also include a provision allowing the program sponsor to modify the terms during the course of the program, companies should exercise great care in making any change that is detrimental to existing reward program participants, particularly if participants have been spending money to accrue reward currency (like points) necessary for redemption. If a company wants to make material changes to an existing program, it should develop a plan for notifying customers of the changes and consider whether those changes should only be made prospectively to avoid potential consumer complaints. And, of course, companies must be set up to address the inevitable consumer complaints and not exacerbate them through neglect or a non-responsive customer service team.
The Spotlight begins and ends with a warning that the Consumer Financial Protection Act's prohibition on unfair, deceptive, abusive acts and practices applies to rewards programs and that the CFPB will continue to monitor credit card rewards programs and work with government partners to take necessary action as appropriate. While the Spotlight ends with the statement that "[c]redit card issuers should take care to ensure that their conduct with respect to the administration of credit card rewards programs conforms with the law," the FTC or a state Attorney General could just as readily warn sponsors of other reward programs to do likewise.
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