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Future of Credit Card Rewards?


Credit card customers who are careful to pay off their balances each month have long profited from credit cards with cash-back rewards. Some of these rewards were subsidized by those credit card customers who didn't pay off their balances and paid high interest and fees. Now that Congress is likely to pass new credit-card legislation with restrictions on fees and interest-rate changes, there's talk that credit card companies will strike back by reducing the perks given to the responsible customers. According to this New York Times article:
Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

This is already happening to Chase credit card customers. Many Chase Freedom Card customers received letters informing them of upcoming changes. These include:
  • restricting the 3% cash back from 3 of 15 categories to just gas, groceries and fast food
  • bonus redemption of a $250 check for $200 in rewards will end effective 6/30/09
  • $30 annual fee (waived for the first year)
Several commenters in my last credit card post recommended ways to reach the $200 level before the $50 bonus ends. If your Chase rewards are being cut, you may want to consider the Pentagon Federal Credit Union's cash reward credit card (see post).

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Marc Schoenfeld
Marc Schoenfeld   |     |   Comment #1
It will be interesting to see what happens. I agree that rewards are in jeopardy. I've always known the card companies are quasi-scamming with their complicated and outrageous fees, but have accepted it as part of the game. In additional, the days of 12 month 0% cash balance transfers directly to your checking account to arbitrage into savings accounts will be over since they count on people missing payments to generate late fees and shoot the rate up mid promo. Let's hope no changes occur to bank that make them not able to offer reward checking accounts.
Mike   |     |   Comment #2
Is there written verification that they will instate a $30 annual fee? I tried looking online but it still says "No Annual Fee". Thanks.
Anonymous   |     |   Comment #3
I don't receive the policy changing letter from Chase yet, dose it mean my 3% cash back for top 3 category and additional $50 for $200 will last some longer than June 30?
Geoff   |     |   Comment #4
Any Credit Card adding an annual fee when there was none is just asking for cancellations.
Anonymous   |     |   Comment #5
I am huge fan of Pentagon until now. I have over 280K in CD's with them. I applied for a credit card with a 25K credit limit. Even though my Fico is over 800, they sent me a request for tax returns.
Tax returns for a credit card???????
ng   |     |   Comment #6
If credit cards reduce or eliminate their rewards program and start charging annual fees, the people who have been using them for the benefits will leave and they will be left with a customer base of people who would not be able to pay all their debt back.
Anonymous   |     |   Comment #7
Credit cards are just a scheme to flees the customers anyway, so they will find a new loophole to continue their profit engine, just wait and it will happen all over again.
Anonymous   |     |   Comment #8
To poster at 9:17 AM, May 19, 2009.

Pentagon CU asked me too to prove regular income, and I applied for only $2500 credit line.

Passive income is not considered as income, according to a CSR and the credit score is secondary in consideration.
ShraZZy   |     |   Comment #9
What $30 annual fee? That should be illegal to introduce it since I signed for No fee!
Anonymous   |     |   Comment #10
Thanks for the post. Just redeemed my $250 cash back today. Don't want to risk losing it.

Is the $30 annual fee confirmed? If it is true, I'll definitely have to cancel my card then.
Anonymous   |     |   Comment #11
I will gladly give up the 1% back I get on most purchases if it means that those who carry balances won't get ****ed by the credit card companies any longer.
Anonymous   |     |   Comment #12
"I will gladly give up the 1% back I get on most purchases if it means that those who carry balances won't get ****ed by the credit card companies any longer."

I never really get this. People user their credit card to make purchases either they can afford, or they can't. When they buy things they can't afford, they are agreeing to take a loan from the credit card company at a certain interest rate. Nobody is pointing a gun at their heads to force them to borrow money from the company. Why are they "****ed by the credit card companies"?

People in this country just needs to learn disiple, responsibility and take consequnces of their own action.
fife   |     |   Comment #13
I should hope that true. But I'm guessing only the so-called wise users of credit cards would be in the position to cancel. Those carrying balances would be stuck for a while.

They send out letters informing of the change and the option to disagree to the new terms and continue using your card until its expiration date. That's been my experience at least.

Great point!

Anon @ 10:17am & 11:51am,
There is a lot of truth in your comments.
Anonymous   |     |   Comment #14
Last month I received $150 for opening a checking account and $50 for opening a savings account and $50 for opening a credit card. The stipulations were a direct deposit within 60 days for the checking account, open the savings with $1000 but then only had to leave $300 in it. The credit card only needed to be used once to get the $50. I used it for resturants, grocery shopping. As long as I keep the checking account open when the cash back rewards reach $10 they can go into my checking account. If I close the checking after 6 months I have to wait until I have $50 to receive the rewards for using the credit card. I always have the card balance debited from an account. I used Pentagon for gas and other things that Chase does not give 3% cash back on. When I worked my paycheck could be split up to 3 different banks. My husbands pension can be split between 2 banks. Gets confusing. Have 2 checking accounts for 2 $25000 CD paying 7% for 70 weeks. Have another one for a higher IRA CD. Have one for an IPod. Have 9 checking accounts right now but will close them when I can. Usually have only 5 open.
When I called Pentagon for something about our IRA's they offered me another $25000 on my credit card. We hope to build a new house this summer so I certainly will use the cash back for appliances and furniture and anything else I can get money back for.
fife   |     |   Comment #15
Anon @ 12:59pm,

I very much agree with a great need for responsibility and consequences.

I also I know there are many people who have been so reckless and ignorant in their financial lifestyle. Credit cards are a sand trap for these people. Tough love, education and more are needed.

Personally I have no desire to associate with the cc companies. The business model is hugely profitable, but at a great expense.
Anonymous   |     |   Comment #16
I have the Chase Freedom Visa card, and I have not received the letter cited in this post. Judging from the description on Chase's website today, the Chase Freedom Visa card:
(1) has no annual fee.
(2) earns 1% cash back on all purchases.
(3) has a bonus 3% cash back on purchases in specific categories, which will rotate on a quarterly basis [THIS IS A CHANGE FROM THE ORIGINAL PROGRAM -- IT REMINDS ME OF DISCOVER CARD'S QUARTERLY 5% BONUS REWARDS].
(4) earn up to 10% cash back when shopping online through Chase.
It appears that the only change is with respect to the 3% bonus. I wonder whether this change affects only new applicants, or whether it changes the program that current cardholders have. If so, then the Chase Freedom Visa becomes a less attractive card to me than the cash back reward card I have from Capital One. I would also like to get some confirmation about this purported annual fee. So far, says nothing about it.
Bill   |     |   Comment #17
I have a Chase 5% rewards card for gas, groceries and Rx. Just got a letter that effective 6/30 they will switch me to the Chase Freedom card with max rewards of 3%.
Anonymous   |     |   Comment #18
In some of the above posts there are questions as to whether or not an instant $30.00 annual fee will be imposed, whether or not the cash back terms on their account have changed, etc. If your credit card company is changing its terms they will have to notify you in writing.

Strangely enough, with four Chase credit card accounts that my family has with Chase, one STILL is receiving 5% cash back on gas, groceries, and drugstore purchases. I don’t know how Chase missed reducing that account! (Note to Chase Bank, if you read the above sentence I’m just joking around so don’t go looking for me; however, to those reading this blog for personal reasons, it’s true!!!) Two of our Chase Freedom accounts will no longer earn the $50.00 bonus and will also have its cash back scaled down to 1%. Yet, the other one still is receiving 3% cash back and the $50.00 bonus. Why they target some accounts and not others, I don’t know.

So, unless your credit card notifies you in writing that they are changing the terms on your credit card, I would not worry.

Hope this helps.
Rayle Shonie
Rayle Shonie   |     |   Comment #19
Unfortunately if the proposed legislation is passed,lenders are also likely to make it more difficult for consumers to get credit. We could see minimized rewards programs and higher annual fees.
Anonymous   |     |   Comment #20
Anonymous at 9:19am. Passive income can be confirmed by a K-1. Banks determine cash flow based on cash distributions from an entity not taxable income. There is a difference between income and cash flow. Same thing pertains to pass thru S Corp and LLC income.
KM   |     |   Comment #21
I got the Chase letter. Its disturbing to me since I use it mainly for groceries. My understanding is that the 3% categories will rotate and not always include groceries. I don't care about the gas, I use a discover card that does 5% on gas for that.

Does anyone know of a rewards card that still does better than 1% on groceries all the time?
Anonymous   |     |   Comment #22
My Citi Dividend card pays 2% on gas/groceries/pharmacy and 1% on everything else (it used to be 5% 3 years ago). It doesn't look like Citi is offering it anymore. Cashback is redeemable as a check once over $50.

Citi's Driver's Edge card paid 6% cashback for the first 12 months then dropped to 3% on gas/groceries/pharmacy and 1% on everything else. It's still being offered. HOWEVER it's a bit of a hassle to redeem the cashback. It has to be redeemed by submitting a car expense receipt (or purchase) or converted to Thankyou points. I was able to redeem my cashback with points 1:1 as student loan checks, but the ratio is less on other items or gift cards in the Thankyou program. Plus, Citi could change things anytime like Chase.

Once I am able to redeem my current rewards, both accounts are closing. Wise use or not, I'm done messing around with these guys for a few $100.
Anonymous   |     |   Comment #23
Oh man, I’m up to $178 on my cash back and don’t use the card enough to make it to $200 before the cut off. That is not fair. I haven’t cashed in because I was hoping to make the extra $50.
Anonymous   |     |   Comment #24
Those with good credit will stop using their cards if tacked with annual fees. On a larger scale America will bleed talent and the productive for other countries as the sheeple continue to ruin this country!
Anonymous   |     |   Comment #25
Perfect way to reduce credit card use by a HUGE percentage. Get rid of the rewards and perk programs. Then all you will have left are those who ring up charges in order to make up for money that they can't pay back.

Even if they don't give me any rewards, I will still use it in order to avoid going back to checks and having a bulging wallet.
Anonymous   |     |   Comment #26
folks, look for the Associated Bank cash rebate card, it still pays a straight 5% for gas/grocery/drug stores. It's not on their website, you have to call this number 877-577-9485. It's also affiliated with Citicards. Use it while it's still around! There's been write-ups about it on Fat Wallet.

If all these CC's start charging interest immediately on purchases, I guess I'll go back to debit cards! Don't go back to checks, too easy for fraudsters to drain your account.
Anonymous   |     |   Comment #27
Anon @ 9:29am,

"Even if they don't give me any rewards, I will still use it in order to avoid going back to checks and having a bulging wallet."

Wouldn't a simple debit card with a checking account fit the bill? That's what I'll be doing shortly.
foglifter   |     |   Comment #28
Hey Bill,

Probably I have the same card, it's called Chase Cash Plus Rewards and it is no longer available for new customers. But my 5% cash back benefit was reduced to 3% a year ago. Although the card was not turned to Freedom card, it still bears the same name.

Looks like Chase is very selective in their product changes depending on the customer.
Anonymous   |     |   Comment #30
To Anonymous who posted on 12:39 PM, May 20, 2009

Yes, a debit card would probably fit the bill as well. I've never used debit cards before since it means the money is out of your account right at the time of purchase and I don't have any "float" period. But, they would be a last resort choice if it came to that.
Anonymous   |     |   Comment #31
For those with a Chase Freedom card, you want to open a Chase checking account.

I recently opened a Chase checking account for the $125 bonus.

Today I got a letter from Chase saying my Freedom card is being upgraded to a Chase Freedom Exclusives card. It gives you everything the Freedom card did, but upgrades you to 3% on your top 5 spending categories instead of just your top 3 spending categories. Also, your rewards have no expiration date as long as you have an open Chase checking account.

They are still offering a $250 check if you redeem 200 points.
Anonymous   |     |   Comment #32
BankDeal Blogger is giving us rumors. Where's the jpeg image of your letter that states that $30 annual fee being initiated??? Otherwise, please have a DISCLOSURE OR DISCLAIMER stating that the comment was just heresay and not supported.
Anonymous   |     |   Comment #33
The days are over when the Citibank Cash Returns credit card gave 5% cash back for first intro 3 months; then 1% thereafter. The days are over when $5000 gave you a $50 credit or gift card. FIA (WorldPoints) make you spend $6000 for $50, and $12000 for $100. The days are over where credit cards gave you lots of cash or gifts for free. The days are still here where you can get 2% cashback/rewards into a brokerage account...but pay heavy interest if you carry balances. IF credit card companies should impose an annual fee on an existing no-annual fee credit card, then it'll be a doom day for these credit card companies... I WOULD hope YOU TOO would CANCEL and Close that account for their abusive fee(s). The days of 0-2% standard balance transfers and cash advances with maximums(!) are obviously over for a long time now.
Anonymous   |     |   Comment #35
Haven't received the letter - maybe because I'm a WaMu cardholder being converted to chase?

Anyone know how ex-WaMu folks will be affected?
Andy   |     |   Comment #36
In June I received a letter telling me that my Chase Freedom card was being converted to a Chase Ultimate card with a different reward setup. The changeover was to take place July 31.

Then this week I got a letter from Chase telling me that I would not be part of any changeover and that I would continue with my Chase Freedom card with the same reward program.
joe   |     |   Comment #37
I'm glad all these promotions are going to be over, they taken advantage of consumers to long

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