Credit Cards: 4 New Riskier Rewards

2.17.10

The government might be putting pressure on credit card companies, but credit card companies are returning the favor by putting pressure on you!

Recently the federal government introduced stricter laws upon the credit card industry. But they are exactly rolling over. They aren’t satisfied with the lower profit margins, so rewards credit card companies are finding new ways to jack you. Below you will find an bit from MSN Money explaining some of the new tactics:

1. Rewards that buy less
Credit card companies pay for rewards programs largely through interchange fees that merchants pay on each transaction, Jusko said. A merchant might pay an interchange fee of about 1.5% for a regular credit card transaction, 1.65% for a rewards card transaction and 2.1% on one of the high-end rewards cards, such as Visa Signature.

“So one easy way to increase profits,” Jusko said, “is to keep the interchange fees the same while watering down the rewards on the other end.”

2. Gimmicks that ‘pay’ for new annual fees
“For example, a card with a $50 annual fee may come with 5,000 points that you can immediately redeem for a $50 gift card, or it may come with 10,000 frequent-flier miles,” Jusko said. “These feel like rewards that are worth the annual fee to the consumer, but the card company has paid less than face value for them, so it’s actually profitable for them.”

3. Splashy new programs for the select few
“The major card issuers will compete harder than ever to be the No. 1 card in the wallet for people with excellent credit and high monthly purchase volume,” Woolsey said. “The programs may be less over the top in terms of some of the earning rates on certain spending categories than some seen in past years but may still be splashy from a marketing standpoint.”

4. More nuisance fees
If you don’t charge a lot, be careful. Issuers are experimenting with new fees for inactivity or for customers not spending above certain levels. Issuers “tolerated” low-charging accounts in the past because those accounts were subsidized by people who paid high fees and finance charges. No more.

Between shrinking rewards programs and new inactivity fees, it would be hard to handle the troublesome maintenance of being a credit card customer. To that, there is only one good solutions – stop being their customer.