Rewards From Credit Cards Have Indeed Declined
Jason wrote about how credit card companies are clamping down on some high reward strategies and loopholes that have been used by smart cardholders. Well, here are a couple of other examples of reward perks that have been reduced by credit card issuers.
In the cash back credit card space, cards used to offer 5% rebates for gasoline, supermarket and drugstore and 1% for everything else with no tiers. Remembers Citi Dividend Card and the Chase Cash Plus Rewards Card? They both competed with each other to be the king of all cash back credit cards.
Both cards put a rebate cap of $300 of their cards, which means you can only earn up to $300 in rebates every year and then you can’t earn any more rebates. Well, the thing was that Citi allowed you to apply for more than one Dividend Card! Cardholders then got even smarter and had both spouses apply for the same card! Most cash back cardholders typically pay their bills in full every month. Since credit card issuers did not charge any annual fee, this became a losing proposition. Soon, the 5% cards went away. Citi Dividend’s rebate is now 2% on “everyday purchase items”. The Chase Cash Plus became the Chase Freedom Card (which initially charged 3% on gas, supermarket and drugstore). But soon, even that became a problem and now the latest freedom card resembles more of a Discover Card than what it was just two years ago.
Gas credit cards use to offer 5% rebates as well. But savvy consumers took advantage of it by simply charging gasoline to a gas credit card. Soon, these gas cards had to cut back on their rebates. Discover Gas started by allowing you to earn gas rebates for up to a certain amount of annual gas spending. But eventually, they had to reduce their gas payout from 5% to 2%. American Express had a few business credit cards that paid 5% on gasoline as well. Soon these will be paying 3%. Even some dedicated station specific gas cards started paying rewards based on the amount of gallon bought! Today, only a few gas cards pay 5%. Even then, cards like the Shell Credit Card (which still pays 5% on gas bought at Shell) closed many customers accounts abruptly recently!
Perhaps the most silly deals credit card issuers made were by offering ridiculous 0% interest credit card deals, with no balance transfer fees! Soon everyone was transferring their balance from their HELOCs to their new found 0% apr credit card! Credit card issuers thought that once someone switched over, they would remain customers for life (just like cable TV?). But switching cable TV was a little cumbersome (though not impossible). But switching to another 0% deal was much easier. So there was no customer loyalty in the end. Folks just kept playing the balance transfer game and credit card issuers were not making any serious or gaining permanent customer loyalty from these teaser deals. Instead, folks use them as a debt reduction tool! Some pf bloggers even recommended taking out 0% financing from these cards and then investing the proceeds to a high yield savings account like a HSBC direct (which paid 5% interest back in the good old days!
Soon, credit card issuers began imposing the standard 3% balance transfer fee again. But they capped it to about $75. Then they removed the cap altogether. And when the credit crisis hit, they shortened their introductory period to 6 months from the usual 12 months that was so common back in the good old days.
So in a very hilariously way, perhaps we have returned to more sanity. Credit card issuers in the era of easy money tried to gain new customers by offering deals and cash back deals that were too good to be true. Many folks have taken advantage of them. But now reality has set in and credit card issuers simply have to have a profitable operations with all their defaults and loan losses. Many of these rewards would have gone away even without the credit crisis because they were money losing propositions to begin with. There are still great cards out there. But many folks sure miss the good old days!
