The following is a guest post by Kevin Fleming. Kevin runs CreditShout, a personal finance blog dedicated to educating people on how to manage their finances and save money with credit cards.
As the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (known informally as the CARD Act) takes effect throughout the United States, credit card holders can expect some changes. Many of these changes are great for cardholders. For example, the act prohibits arbitrary interest hikes, double-cycle billing, ambiguous due dates, and misleading terms. Lawmakers and consumers alike believe that these reforms were long overdue (which is why the bill passed with such bipartisan support), and consumers now have an unprecedented level of protection against unfair practices.
However, a major drawback of the CARD Act is the fact that credit card companies are getting clever trying to find new ways to make money without duping customers. This means cardholder fees, higher interest rates, and the loss of cash back programs. Of these, the latter is of the most interest to many consumers, who choose credit cards on the basis of cash back.
Why Have Cash-Back Programs Suffered?
Credit card companies make the most of their money from “bad” cardholders. Individuals with low credit scores get high interest rates, and they often keep high balances on their cards. But they also make money when they can “trick” customers into paying hidden fees, when they hike interest rates with little to no notice, when they can fudge the due date, and other practices that have been deemed unfair. As the CARD Act outlaws these practices, card companies must resort to other avenues.
Unfortunately, “good” credit card holders who pay their bills on time, keep balances low, and have low credit scores aren’t very easy to make money off of when there are no tricks to pull. These customers are often the ones who pay off their cards quickly and reap rewards, such as cash back. With revenue streams from these customers drying up, card companies have resorted to forcing them to pay annual fees, and have taken their cash back programs away.
How Has Cash Back Suffered?
Cash back cards still exist, but they’re harder to find and the rewards are far less. Such rewards have dropped by fractions of a percent on many cards, and some of them have gone down car more. For instance, cash back on gasoline purchases may drop from those generous 5% rewards to 2% or less, unless they are phased out all together.
Those customers who do still get cash back face the possibility of credit card fees annually (the better the credit score, the higher the fee) and rising interest rates. Card companies are now essentially seeing how much they can get consumers to pay upfront, in no uncertain terms, before people begin getting rid of their cards.
Make the Most of Your Program.
Are there any options for credit card holders who simply want a fair shake? There certainly are. One of the first things to consider is whether you’d like to stay with your current card. Talk to a representative of the card company and make sure that you know exactly what to expect with their cash back programs. An annual fee might not be an issue if you spend quite a bit on your credit card and pay off your balances regularly, especially if your cash back programs don’t change under your current card.
You might also consider an alternative to the credit card you currently own. There are still good cash back credit cards out there. Discover More card has 5% cash back bonuses on many different purchase categories, and with interest rates as low as 11.99% for the first six months, users with good credit will benefit. Plenty of other credit cards will still offer rewards, so make sure that you tailor your rewards program to your actual use of the credit card and your needs as a consumer. Now might also be a prime time to pay off the balance to your credit card, or consider using a PayPal debit (which has generous cash back programs) in addition.
Editor’s Note: Cash back and Reward programs are not for everyone nor should they be the determining factor when applying for credit cards. Always read the fine print and weigh the pros and cons of credit cards so you can make an informed decision.