Credit Card Companies Slashing Rewards and Increasing Rates

Credit card companies are taking dramatic steps to reduce their risks and trim their customer accounts. Major creditors such as Citigroup, J.P. Morgan Chase, and American Express are slashing rewards and increasing fees and interest rates.

Creditors that used to throw money and free rewards at consumers, such as Citigroup and Discover, are now slashing rewards across the board.

A RISKY CREDIT ENVIRONMENT IS MAKING LENDERS NERVOUS

• Analysts estimate credit card chargeoffs—debts the card companies believe they will never be able to collect—could total $75 billion in losses in 2009;

• Reward programs are costly. Discover Financial Services posted revenue of $5.7 billion in 2008, while the net cost of its rewards program was $710 million;

• Analysts estimate that Americans' credit card lines will be cut by $2.7 trillion, or 50 percent, by the end of 2010;

AS A RESULT, CONSUMERS ARE PENALIZED

• Citigroup Citi Dividend MasterCard card holders received 30-day notices in fall of 2008 that they will receive 2% cash back, rather than the current 5%, on purchases they make using their credit card. In addition, Citigroup now requires many more rewards points for domestic flights for its Thank You Rewards program;

• Discover now requires cardholders to forfeit cash rewards if an account is inactive for 18 months or if they pay more than two months late. Also, Discover once offered 12,000 bonus airline miles to new customers. Now, new cardholders earn 1,000 miles each month they make a purchase, for a total of 12,000 miles at the end of the first year;

• American Express recently axed the domestic companion airline tickets provided free to Platinum and Centurion cardholders;

• At JP Morgan / Chase, consumers who got the Freedom credit card after Nov. 4 2008 will receive a 1% cash reward on most purchases and a 3% reward on promotional items, which constantly change. In the past the card provided a 3% automatic cash back on the categories in which consumers spent the most.

Has your credit card issuer reduced your rewards or increased fees or interest?