Credit card companies have been facing a rough patch of late. The CARD Act from the US Government came into play from February 2010 and enforced tougher rules and regulations on credit card companies that were already reeling under the pressure of the ever increasing rate of defaulters.
Credit card companies are planning to sail through this storm by enforcing tighter rules on the various rewards programs they are offering on their cards. This heralds bad news for consumers who hold credit cards. Based on the information by SmartMoney, though the reward programs may seem to be similar on the surface, there are also cuts in the program for people who delay their payments. There are a number of banks that have already brought in this change. A few of the main players are Citigroup, Chase, Bank of America, Discover, American Express and Capital One.
Credit card rewarding less attractive now
Though most of the reward credit cards issued by Capital One void the reward program on the card only when it is cancelled, there are many that reduce the air miles that a person has earned during the period he makes a late payment.
Discover advertises a "5% cashback card" which promises to refund 5% of all the transactions that are made using the card. However, if the card is inactive or if two consecutive payments from the customer come in late or in case the customer plans to close his card, the reward programs vanish into thin air.
Bank of America and Chase void the reward programs on the card if the card has been delinquent for two months or more. Citigroup and American Express cancel the rewards on the card if the customers send in their payment late. However, these banks do agree to restore the reward programs on the card if customers are willing to pay an extra fee in the range of $15 to $29.
In recent months, the government is taking a closer look at how the credit card issuers are penalizing their customers and playing with the reward programs that are being offered at the onset. Center for Responsible Lending's senior researcher, Josh Frank, said that it is time the government passes a legislation that curbs banks from penalizing consumers in this manner.
Speaking to SmartMoney, Frank said "The revocation of rewards is in effect a penalty. If you have accrued a reward and get it taken away for being one day late, that is an unreasonable and unproportional penalty in our opinion."
Going forward, if you are applying for any credit card, ensure you read the fine print and understand the terms and conditions well before signing on the dotted line.