Will Rewards Credit Cards Fade Away?
The new laws, most of which will go into effect in February 2009, will reduce credit card issuers’ revenues significantly. That means they’ll be looking for new and different ways to boost their profits. Phasing out rewards credit cards may be one way.
Why will the changes harm the banks’ profits? Because several provisions of the new laws will limit their ability to increase interest rates at will.
Right now a card issuer might mail a promotion promising a low “non-promotional” rate that convinces consumers to transfer balances - or simply to spend more than they should. They begin to carry a large balance, but don’t worry because the interest rate is so low – until they open a statement one day and find that their old 5.99% is now 25.99%.
What happened? The credit card issuer exercised its right to raise rates at “any time for any reason.” One common reason right now is a late payment – even if that payment was mere minutes late – or a default or late payment on some other account.
Experts predict that this prohibition alone will cost the credit card issuers an estimated $10 billion in lost revenue.
Banks will still be able to raise your rate on existing balances – but only if your payment is 60 days or more late. And then… if you make the next 6 payments on time, they’ll be required to drop the rate again.
The ban on rate hikes doesn’t apply to introductory rates, which you accepted with the clear understanding that the rate would raise on a set date. That date, by the way, must be at least 6 months from the date the card is issued or the convenience check written.
Since these changes don’t go into effect until February or later, credit card issuers will be spending the next few months raising rates, adding fees that weren’t covered in the law, and cutting costs.
Since Rewards cards are often used by those who pay their bills in full each month, they may be seen as an additional drain on profits, and be phased out. If you have a rewards card, you should collect on those rewards now, and do so often. If the programs disappear you may not be able to collect on unused rewards credits.
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