| by Jason Steele |
Lots of interesting news today in the world of credit cards.
What Happens To Your Miles If You Pay Late?
I have previously talked about what happens to your points or miles when you cancel your credit card, or have you card canceled by your bank. A separate but related question is what happens when you pay late. In the past, just about all rewards were based on your spending. Now that there is this credit crisis going on, and fewer people are actually paying their bills on time, if at all, more credit card companies are doing the next logical thing; they are withholding rewards if you don’t pay your bill on time. Here is an article over at ABC news about how Amex will be doing this on their Delta, Starwood, Hilton, and JetBlue cards. The article really focuses on the fee they are charging to get your miles back. The consumer groups they quote are outraged that there is another fee that the card companies are imposing.
I might surprise people, but I really have no problem with this policy or this fee. I frequently mention that you have no business using reward cards if you cannot pay your bill in full, and you probably shouldn’t even have a credit card if you can’t pay your bill on time. The rewards they give you are for being a good customer, and that cannot be said of you if you don’t pay your bill on time. The fee to recover the reward is a bit silly. Depending on your balance, it may or may not be worth it to recover the points. At that time, you are just ing X number of points for X dollars. The lateness really shouldn’t be a factor as to whether or not you choose to pay the fee. The good news is that with these third party affiliate cards, once the points or miles are in your account, they are yours to keep. Short of some sort of fraud, there is no way that Amex is going to take back your Hilton/JetBlue/Delta, or Starwood points that have already been deposited, no matter how bad your relationship with Amex becomes. The same is most definitely not true for their Membership Rewards program, whose points only exist so long as you are a member, as the name implies. If Amex decides they no longer wish to have you as a customer, the points disappear.
The End Of Rip Offs?
The blog over at the Mint website is speculating that the soon to be effective CARD act regulations will bring an end to credit card rip offs. This is a fairly accurate, if optimistic look forward to next February, when we will get our first glimpse of the the world after CARD. In reality, credit card companies will find other ways to rip us off, this bill just eliminates the most blatant and longest running scams going. Some people thing that the aforementioned “restore your points” fee is a rip off. It certainly will generate some new fees. Here’s to hoping that credit card companies will try to earn their fees in honest ways. My prediction has been that we will see more and more promotions that require a minimum spending amount, like X miles after X dollars spent in one year. This will be a terrible incentive for some people to spend more, but at least it is more honest than having due dates on holidays, universal default, and double cycle billing.
Finally, The GOP is for higher APRs
I really don’t want to make this blog too political, but there is no way around the fact that the CARD act, which I love, was passed with the overwhelming support of the Democratic Congress and a Democratic president. Now that the banks are jacking up interest rates in advance of it’s implementation, it is sadly unsurprising that the Republican party is doing everything in it’s power to block efforts to free credit card interest rates. I really hope that their opponents in the next election raise the issue that they voted for higher credit card interest rates.
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November 20th, 2009 at 14:07
I would expect a counter of “voted to keep government interference out of business/market”. By the time the next election cycle rolls around, I expect more than a few highly visible failures caused by government intervention will be out there and publicly known. Some current policies are already coming home to roost. But I expect it’s too much to ask that the politicians responsible will be held accountable.
The way I see it, banks have seriously mispriced their risk in a number of areas, credit cards being one of them. They are now trying to adjust to reprice that risk in most cases, as well as maybe squeeze a little more out to make up for current losses. (Have you seen the credit card default rates lately? Horrendous.)
If freezing interest rates is a good thing, then why stop at 29.99%? Why not force it down to 15%? Or 10%? Or how about even 5%?
The problem is that freezing rates puts a cap on the amount of risk the banks will be willing to take, and therefore will directly affect (reduce) credit availability. For example, if interest rates are frozen at 15%, expect a large number of credit lines to be closed, and lots of applications to be rejected. There will be a lot fewer people who will be able to get a credit card.
Although it might be tempting to say that these riskier borrowers should not be allowed access to credit, you have to remember that these marginal borrowers will just go elsewhere — pawn shaps, payday loan business, etc. I’d bet these people would view a mere 30% interest rate as a blessing, and would disagree that they were better off without access to such credit.
And I should think it is sufficiently clear by now that politicians (both parties) do not want to reduce credit availability right now. Just about every new program being proposed or implemented is not for the health of the economy or consumers, but to continue to extend credit and pretend there are no problems.
Whenever people complain about credit cards being a rip off, or that a specific bank or card is ripping them off, I have a standard reply. “Then don’t use them.”
You can avoid being “ripped off” by simply using another form of payment. If one specific card is the problem, switch to another. If all cards are the problem, then switch to using cash or debit.
If you can’t use cash or debit to pay for all of your credit card purchases, such as because you carry balances, then you are getting some benefit from using that credit card. To complain that they’re charging you for providing that benefit, or charging you too much for it, is something I find laughable.
I doubt such people would be willing to work for their employer without pay for a week or two. Or would be willing to take a pay cut to what their employer thought was a “fair wage”, as versus what they can market their skills to other employers for.
November 21st, 2009 at 19:41
@ Interloper
You are exactly right – it is so sad to see people whine and complain about credit card companies raising interest rates. They can do whatever they like because they are the ones extending the offer of credit to you. If someone thinks that the credit card interest rates are too high for a particular card then they should get a different card or even better be responsible with their spending and just pay off their balance in full every month.
What is really sad is that so many people are defaulting on paying off their credit cards that the Bank of American credit card division has lost money for the last 5 quarters in a row and yet people whine when BOA assesses an annual fee: http://www.creditcardchaser.com/boas-credit-card-business-is-losing-money-yet-still-catching-flak/
I wonder how many of those people would suddenly change their minds if THEY were the ones lending money to people and many just refused to pay on time or even pay back the money at all…
It starts with CARD and if people don’t wise up then soon the government will be happy to take over everything and then before you know it the only credit card available will be from the government in the form of a government public option credit card (I am being facetious but just think about it…): http://www.creditcardchaser.com/whats-next-a-federal-government-public-option-credit-card/