Consumers lose approximately $500 million annually due to 'bait-and-switch' credit card reward schemes, according to CFPB.

Consumers lose approximately $500 million annually due to 'bait-and-switch' credit card reward schemes, according to CFPB.
Consumers lose approximately $500 million annually due to 'bait-and-switch' credit card reward schemes, according to CFPB.
  • In 2024, 23% of cardholders did not redeem any rewards, according to a new survey by Bankrate.
  • According to the Consumer Financial Protection Bureau, more consumers are saying that rewards are difficult to redeem or are worth less than they thought.
  • The CFPB is intensifying its enforcement of "bait-and-switch" rewards programs.
The secret to credit card rewards

Attracting new customers and encouraging existing borrowers to spend can be achieved through credit card rewards.

Most consumers unintentionally forfeit some reward dollars, regardless of whether they're accumulating cash back, points or miles.

The Consumer Financial Protection Bureau is intensifying its scrutiny of some issuers' "bait-and-switch" rewards programs. The consumer watchdog revealed on Wednesday that certain credit card companies may be violating the law by devaluing earned rewards points and airline miles, or restricting cardholders' ability to earn or redeem rewards.

Americans' top financial goal is to pay off debt, with nearly half of cardholders having maxed out a credit card. "Dynamic pricing" was a top contender for word of the year.

According to a 2023 report by the CFPB, consumers forfeit approximately $500 million in rewards annually.

In 2024, nearly 1 in 4 cardholders did not redeem any rewards, according to a survey by Bankrate, which polled over 2,500 rewards credit cardholders in November.

CFPB cracks down on rewards tactics

While about 90% of credit card spending is on rewards cards, a growing number of consumers have reported that some rewards are difficult to redeem or not worth as much as they thought. In 2023, complaints about credit card rewards increased by 70% compared to pre-pandemic levels.

"Credit card issuers frequently use deceptive tactics to entice customers into high-cost cards, increasing their own profits at the expense of consumers' earned rewards, according to CFPB Director Rohit Chopra. These issuers should honor their promises and deliver the cashback bonuses and free round-trip airfares they advertise."

Since January 2020, only 2% of credit card complaints reported to the CFPB involved issues with rewards, according to the Consumer Bankers Association.

CBA President and CEO Lindsey Johnson stated that the only bait-and-switch occurring is the CFPB misrepresenting its own data.

Johnson stated that based on the CFPB's research, credit cards are the most effective way for the one-fifth of Americans without credit to establish their financial foundations.

The American Bankers Association pointed out that consumer complaints about credit card rewards are exceedingly rare.

Although research shows that credit card rewards programs are widely used and provide significant benefits to millions of American cardholders, Director Chopra has decided to ignore the evidence and criticize the product.

Consumers like reward cards

Despite high credit card interest rates, 83% of cardholders choose their new credit card based on perks, according to a report by CardRates.com.

While 58% of credit card users surveyed by CardRates preferred cash back over miles or points, not all cardholders utilized the credit card rewards offered to them.

Redeeming travel rewards can be challenging despite their potential for higher returns, as Bankrate discovered. Only 11% of rewards cardholders redeemed for a free hotel stay, and just 10% redeemed for a free flight.

"Not utilizing your rewards is a significant missed chance," stated Bankrate's senior industry analyst Ted Rossman. "Although the greatest rewards may differ, the worst reward is receiving nothing."

How to make the most of rewards

Bill Hardekopf, a credit card expert and CEO of BillSaver.com, stated that in the ideal situation, credit card rewards are equivalent to "almost free money."

If you pay your credit card off on time and in full every month, you can keep the benefits of cash back or other perks. However, with credit card rates over 20%, on average, the benefits are quickly eroded if you carry a balance.

Missing or being late on a payment will result in a significant penalty, which will exceed the benefits you will receive.

Hardekopf suggests choosing a cash-back card with a low or no annual fee for the best reward.

by Jessica Dickler

Investing