Beware credit card promotion offers

Pamela Yip
The Dallas Morning News

If you get an enticing credit card promotion, don’t be too quick to jump on board.

You may get more than you bargained for.

The Consumer Financial Protection Bureau recently issued a warning to credit card companies about “deceptively marketing interest-rate promotions.”

The bureau said it’s concerned that some companies are luring consumers with offers of reduced or zero interest for a specific purchase or balances transferred from another credit card.

“Credit card offers that lure in consumers and then hit them with surprise charges are against the law,” said bureau Director Richard Cordray. “Before they sign up, consumers need to understand the true cost of these promotions. We are putting credit card companies on notice that we expect them to clearly disclose how these promotional offers apply to consumers so that they can make informed choices about their credit card use.”

Under the promotions, consumers often are encouraged to transfer a credit card balance or make a large purchase that would be subject to a low or zero percent interest rate for a set period of time. However, the Consumer Financial Protection Bureau said, certain promotions do not adequately convey the risks involved.

Typically, credit card companies give consumers who pay off their balance each month a grace period during which they aren’t charged interest on new purchases. But consumers who accept a promotional offer risk losing the grace period on new purchases if the entire balance isn’t paid off by the due date.

For example, say you transfer a $3,000 credit card balance to a new card offering zero percent interest for 12 months. If you then use that card to buy something for $500, you’ll have to pay off the $500 plus the remainder of the balance transferred to avoid incurring interest charges.

“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 agency said.

To avoid nasty surprise:

Don’t make new purchases. If you accept a promotional offer, you can avoid unexpected interest by not making new purchases with the card until you pay off the entire balance. Instead, pay with cash, a debit card or another credit card that doesn’t have a balance.

Pay your bills on time. With promotional and deferred-interest balances, it’s critical that you pay off the entire balance before the end of the promotional period. In many cases, interest may accrue from the original date of purchase if the balance isn’t paid by the end of the promotional period. Also, make one late payment and the card issuer may add months of back interest onto your balance.

The financial industry said it’s important that it have clear marketing because it’s good business.

“An informed consumer is a satisfied consumer who will build relationships for the long run beyond just a promotional product or opportunity,” said Alison Hawkins, spokeswoman for the Financial Services Roundtable, which represents financial services companies.

So do yourself a favor. Don’t sign up for one of these offers until you fully understand what you’re getting into. You may save more in the long run.