Last week, I told you about a weird new policy at CitiBank and Amex where they will withhold points when you do not pay your card on time.     My conclusion was that there is nothing wrong with that policy, you should have to abide by your side of the agreement and pay your bill on time if you want your reward miles.    In my mind, that is the whole point of a reward.

The Frugal Travel Guy Agrees

It seems that noted reward card expert Richard Ingersoll, AKA the Frugal Travel Guy shares the same opinion.    In his post he cites this article from the Chicago Tribune and notes, “Any move that banks can make to help people become more responsible with their credit, I am all in favor of……To any of you that are in that boat, for your own sake, stop for a minute and think about what you are doing.”

While I agree with the policy from a fairness standpoint, he takes it a bit further in saying that the policy and the reinstatement fee is a good incentive to pay your bill on time.     Immediately after I posted my article, I realized that I had neglected to mention another critical point about this new policy.     Frankly, if you are late paying your credit card bill, the last thing that you should be worried about is your frequent flier miles.    Remember, reward cards should ONLY for people who ALWAYS pay their bill IN FULL and ON TIME! If you are paying your bill late, you are getting hit with interest at a penalty rate and late fees that will dwarf the value of almost any reward.   Compared to a $50 late fee, a few thousand points or miles are peanuts.

Remember, even the most valuable rewards are lucky to be worth 3 or 4 cents a mile, with many worth far less.      Delta miles, for example, are usually worth closer to 1 cent than 2.    So you would have to have a bill of several thousand dollars just to come close to the value of the late fee by itself, let alone the interest.    Add some “reinstatement fee” , and you can see that you are forking over far more dollars than your miles are worth when you pay late, under almost any scenario.

Randy Petersen, the editor of InsideFlyer, as issued a pretty stern rebuke to US Airways for further devaluing their rewards.    In a world where airline programs are constantly being devalued, his remarks stand out in that he points out that their award redemption levels are now below their fellow Star Alliance members Continental and United.    When you are doing something even worse than United, you know you are doing pretty bad.

Over at the View From The Wing blog,

Gary Leff is looking at the big picture and noticing that US Airways has been behaving very erratically of late, “The problem of course is that with moves like US Airways is making, coupled with their past inanities (like temporarily abolishing elite bonus miles), one simply does not trust them as a place to accumulate miles.”    Gary rightfully concludes that he “sure don’t want to accumulate too many miles over there.”

With United, Continental, and US Airways frequent flier programs in such bad shape, it may be time to start looking into a more flexible reward card if you are committed to one of those airlines.   A card like the Amex Starwood Preferred Gust or any of their Membership Rewards cards offer you the opportunity to redeem miles on your choice of airlines.    The alternative is to commit to a single reward program, only to find that the goalposts have been moved when your time comes to score an award.

PBS Takes A Look At The Credit Card Industry

PBS’s critically acclaimed FrontLine program is airing a documentary program tomorrow, November 24th,  about the credit card industry.    The program is produced is produced in cooperation with the New Yorke Times by former 60 Minutes producer Lowell Bergman, whom Al Pacino played (opposite Russell Crowe)  in movie The Insider.      Apparently, this is not the first time that Bergman has examine the credit card industry.    A look at his PBS bio reveals that he produced The Secret History Of The Credit Card way back in 2004.

I checked out a preview of the program to get a feel for what we should expect.   It appears that they are going after the industry treatment of the revolvers, people who carry a balance on their credit card.    A careful examination of the typical tricks and traps seems included as well.    The CARD act will feature prominently, but it is suggested that industry lobbying has prevented such regulations from being enacted much earlier.

Overall, I have a high regard for Frontline.    It is well known that one of the most objective sources of investigative reporting happens to PBS, as they have little reliance on the advertisers that the networks live and die off of.     Simply put, don’t expect ABC, NBC, and CBS to go after the credit card companies from who they receive billions in advertising dollars from.

I am hoping that they cover some new ground, rather than say how unfair industry practices are, and how lobbying prevents serious reform.    While true, the same can be said of almost any major industry.

Tune in tomorrow for the show, and I will try to have my take on it posted by the end of the week.

Here are three somewhat weird things that happened in the world of credit cards today.

Citi Has A Strange Offer

I am a big fan of the reward cards that offer a minimum spend to get to a big reward.   It seems like a fair deal to me.   You give us your business, and we give you a reward.   For example, Citi’s American Airlines cards require a $750 in total spending before getting a 30,000 mile reward.      The latest offer from CitiBank is a strange twist on that.    This article points out that Citi is now offering to lower your interest rates if you spend $750 a month.

I think this is taking it a bit too far.   In my world, people paying credit card interest are, by my definition, spending too much.     They are inherently in over their heads.    Asking them to spend more to lower their interest rate is predatory.    On the face of it, most people of low to moderate income will spend at least $750 a month, so you could argue that Citi is just asking you to use their card over others.    Even that line of argument reminds me of tobacco companies defending their advertisements as just wanting people to switch brands, even as they placed ads in teen magazines.     The other problem is that if other companies start doing this, soon you will have a situation where someone could owe money on multiple cards, and they will have to go further into debt to reduce their credit card payments.

I love reward cards, yet I firmly believe that they are only for people who pay their bill in full every month.   I really think a line is crossed when you go from a reward based on a minimum spending amount to a lower interest rate based on a minimum monthly spend.   Shame on you CitiCard for implimenting predatory practices, even if they are not banned by CARD!

Better New From Chase

Chase has decided to end the mandatory binding arbitration clause in its cards.   This kind of arbitration is inherently unfair.    The original idea behind arbitration was that disputes could be resolved more quickly and less expensively in a private setting than in the courts.    Mandatory binding arbitration turns this upside down in that you have essentially given away your rights to an impartial judge, and now must submit to a very lopsided forum.      According to this article, “A congressional report in July said the National Arbitration Forum, a Minneapolis-based company that handled most debt arbitrations in the U.S., misled consumers and hid ties to collection firms. Companies won almost all the time, according to the American Arbitration Association.:

While this is seen as good news, it is akin to a reading a headline, “Man Stops Beating His Wife”.    Obviously it is bad news that this practice  ever occurred.    Worse, I have have seen no indication yet that other banks are following Chases lead, yet.

The Strangest Credit Card Ever

Finally, here is an odd article about a “credit card” that cannot be used to purchase anything.   It’s purpose is to be used as a utensil.    Granted, I have used credit cards to try to jimmy a locked door, or even to scrape ice off of a windshield, but I don’t imagine I will ever use one as an eating utensil.   The thing cost $12, about the same price as some decent cutlery!   I think it is sold for design, artistic, or novelty purposes.

Are you really so short on space that you can’t bring along a regular plastic utensil?     I would sooner slurp my soup or eat with my hands, thank you.

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.