Credit Card Issuers Make Numerous Changes in First Months of 2009
The President and Congress aren’t the only ones who have been busy making changes during the first two months of 2009. Credit card issuers have been making their own changes as well. Since January, issuers have increased rates and changed terms for many cardholders.
This week, American Express announced one of the most dramatic changes. The issuer is offering $300 to a select group of high-risk borrowers to close out their accounts in order to reduce the accounts that are a risk to default. Cardholders must enroll by February 28 and pay off the entire balance by April 30. If the card has rewards, consumers need to use the rewards before enrolling, because closing their account cancels accumulated rewards.
Some question whether this buy-out work for cardholders who are struggling to make their monthly payment; since these people aren’t paying more than the minimum payment, how will they find the money to pay off their total credit card loan?
Experts say it is interesting how quickly the credit card business model changed. Until recently, credit card issuers were using rewards, intro rates, cheap credit and high limits to grow their cardholder numbers any way they could. Now, that strategy seems to have backfired and now here’s an issuer paying off customers to get rid of them. One expert makes this comparison to the rough time in the credit card industry: issuers are making changes to patch up some of their enormous holes to prevent their institution from sinking, but that these changes directly affect the cardholders who are being used as the patches.
The following changes have been announced or have taken place during the first 60 days of 2009:
* Chase added a $10 monthly fee and increased the minimum payment from 2% to 5% for those who carry a large balance.
* Chase changed the reward structure for Chase Freedom. Cardholders once received 3% cash back in the top three of 15 everyday categories where the cardholder spent the most. Now, cardholders receive 3% cash back on gas, groceries and fast food purchases for the first six months and 1% unlimited cash back on everything else.
* Capital One increased the rates for new customers on 15 cards. They increased the rate for the Platinum Prestige card from 7.15% to 11.9% and the rate for the No Hassle Points card (excellent credit) from 8.15% to 13.90%.
* Citi announced that it will change its ThankYou reward structure starting March 1. Cardholders can currently redeem 20,000 ThankYou points for any domestic flight up to $400 in value. In March, the structure changes to 100 points per $1. Cardholders will have to redeem 40,000 points for a $400 flight.
* Citi increased the rate for the Platinum Select card from 7.74% to 8.75% and the mtvU card from 12.24% to 14.24%.
* Citi dropped the intro rate for balance transfers from 0% for 12 months to 0% for 6 months.
* Citi increased the rate for cash advances from 19.99% to 21.99%. The issuer also increased the default rate from 28.99% to 29.99%.
* Citi and Bank of America began charging a 3% fee for all transactions made outside the US in US dollars. The fee previously was not added when foreign transactions were made in US dollars.
* Discover changed its Bonus Miles structure. Discover once offered 12,000 bonus miles with card application. Now you can earn 1,000 bonus miles each calendar month you make a purchase for a total of 12,000 miles during your first year.