Weren't they saying there were going to cut all those cash back programs? It's a different tune daily...

Hasn't Consumerist been trying to tell us for months that credit card companies were going to take away all the rewards programs, etc? I didn't believe that, both because I reasoned that precisely what is described in this article would happen, and because the torrent of credit card offers I received barely slowed down even at the worst of the credit crisis. If you're credit-worthy, they certainly want you as a customer. It's actually a GOOD THING that risky customers aren't getting offered so much credit anymore.

Rewards programs are just too good at retaining customers for them to want to get rid of them. I also have doubts that they will "bring back" annual fees in a serious way. I bet that they will become slightly more common, but it's just too easy for people who are "deadbeats" and have good credit to switch to some other card for them to put up with much. I know I will drop any card that starts charging an excessive annual fee and refuses to waive it.

I dont really use my credit cards other than for credit score and every once in a while to keep them active, so as long as they dont jack the annual fee up too high, they can do whatever they want to mine. As a matter of fact Capital One (I know I shouldnt have one but they were the only company to issue me one when I was 18 with no credit and I keep it for FICO) just jacked my rate up from 8.00 to 18.99. I use it to pay one monthly bill then I pay it just to keep it active so in reality they could crank it to 100.00 and I still wouldnt care.

I don't get it... Why is someone who pays off their CC bill each month a deadbeat? Is that some industry term with which I'm not familiar? Seems like these people would be pretty non-deadbeat-like consumers. I get why CC issuers didn't like these people in the past because they didn't collect any interest, just don't understand the deadbeat monicker.

@RogerTheAlien: Apparently because paying off your balance every month doesn't translate to profit for the card companies, it's the interest levied on running a balance that makes them money.

This is a very confusing post. It sounds like you are calling folks who charge everything and pay the balance each month "deadbeats".

@RogerTheAlien: Because they didn't make much money off of us compared to people who were racking up finance charges, interest, and late fees every month. It's not a comment on our character, it's a comment on our usefulness. (My heart bleeds.)

I never felt like I was being treated any worse than anyone else by my CC banks. This did seem like the natural reaction to the CARD act - basically, instead of gouging "dead beats" to try to pay for losses from high risk customers, CC companies should just STOP GIVING CREDIT to people who obviously are a huge risk, and focus their business on people who actually use these financial tools responsibly. I am pissed that my HSBC issued GM card just had it's credit limit cut in half, but my guess is it had something to do with infrequent use (no real point using those rewards these days).

I like being a deadbeat.

@RogerTheAlien: I think that term goes to show the demented mentality that's become dominant at some major banks. People who use financial tools responsibly are "dead beats" while high risk people who end up paying most of their income to interest are desirable customers.

@johnva: I wouldn't want an annual fee, but if there is one, there has to be significant rewards to go along with it. Otherwise, I'll just keep going to the free cards. American Express does a great job with rewards for an annual fee. The only reason why I don't have the annual fee card is because I want cash back, not points for stuff or airline miles.

Yes, it is an industry term, equivalent to being a freeloader. In other words, they get the benefit of using the card, but don't earn the credit card comapany any interest.

@pkoutoul: It's a term used in the industry. People who pay off their balances every month are called "deadbeats" by the banking industry individuals who favor those who carry balances because they make more money for the company.

People who pay their balance in full every month make less money for the company.

Can we get a Consumerist dictionary already?

@pecan 3.14159265: Yeah, that's the only circumstances under which I would consider an annual fee - if I was getting uber-fantastic rewards that much more than compensated for it.

If I don't come out ahead, then I'll just go to someone else who will play ball.

@RogerTheAlien: I think consumerist is aware of the irony, though.

@johnva: "It's actually a GOOD THING that risky customers aren't getting offered so much credit anymore."

It's almost as if the credit industry is going to be run in some kind of... responsible fashion? That doesn't sound right.

Whether the pressure is being applied by the market, the government, or the public at large, it seems like at least one part of the financial sector is headed in a more responsible direction (giving less credit to risky consumers).

I'm a dreamer, I know.

@floraposte: Got it. Thanks to everyone. I guess I was giving the CC guys too much credit (no pun intended, seriously) for not being über dickwads. My mistake. Man, will the douchebaggery of CC companies never cease?

@Jeremy82465: Capital One isn't all bad...they are good in that they don't charge a foreign currency exchange fee last time I checked. The only drawback is that sometimes it's hard to get them to give you a reasonably sized line of credit (they are notorious for giving tiny ones even to people who could easily handle much bigger ones). If the customer is a revolver, that makes sense and is quite responsible. If the customer is a convenience user, it's sometimes damn annoying.

Most of the anti-Capital One stuff you hear about comes from people who pay them interest. Those people evaluate a credit card company entirely differently from someone who is not a revolver.

(And no, I'm not an employee of theirs. I just have one of their cards and haven't had any problems with it.)

@johnva: And oh yeah, C1's rewards generally kind of suck. So I don't use it for a primary card, but it's useful for international travel.

@qwickone: Definitely -- the claim that bad customers were subsidizing the good ones is baloney. If a credit card company loses money on responsible customers, they wouldn't try to get responsible customers at all.

CC companies make money in fees (paid by the stores) for all of the responsible customers, which amounts to a couple percent. If you pay your bill off each month, the CC company still made ~2%/month or ~24% APR off of your purchases for the loan they gave to you on your card, and the store essentially paid the interest for that loan. The stores subsidize the cash-back programs. Not the irresponsible card holders.

@pkoutoul: Yes, its counter-intuitive (to us). The financially responsible CC users don't make CC companies as much money as those who carry a balance, are late in paying, go over limits, etc. Hence, they are deadbeats.

I thought "deadbeat" was a pretty common term by now, but I forget that not everyone reads/write for the Consumerist daily. I've added a definition to the post for newbies.

@pecan 3.14159265: It's still an inacurate use of the word. Why don't they call us "aquarium castles?"

@RogerTheAlien: It is an industry term. I believe the first time I heard it was on an episode of PBS's "Frontline" while they were interviewing Dr. Elizabeth Warren about the credit card industry.

@johnva: Cap One won't raise my limit. I've had a card with them for more than six years and they won't raise my limit past the $500 mark. And I've only requested once. I use it once in a while and that's it.

@pecan 3.14159265: I've heard they almost never will give you a larger limit by asking them. They are weird that way. In my case, they just magically raised mine on their own, to at least a semi-reasonable level (lower than my other cards, but enough that it can actually be useful for intra-month spending if I'm outside the U.S.).

Think about it, you pay your card every month in full, you carry no balance, cogito ergo sum, you have no interest charges.

Credit card companies love interest charges.

@Chris Walters: Talk about beating a dead horse.

@sanjsrik: But they CAN still make money off of you even if you're not paying any. Let's not forget that.

@nataku83: Yeah, it would seem really stupid to me to raise all your prices/cut rewards for the group of people who AREN'T defaulting on their accounts left and right. Instead of just losing the profits from all the interest and fees paid by the revolvers, you might lose ALL your profits.

@johnva: They were my first CC and they kept raiseing my limit, trying to get my into debt trouble I assume, but I used it responsibly. Now I have a Chase Rewards card and only use that one every few months to keep it active.

I am proud to now be one of the people CC will either be courting or despising, which ever way they end up going. As of yesterday, I have been without CC debt for 2 weeks and am SO happy to be done with it. Slightly more than $12,000 paid off in 4 years, 2 of which were during graduate school. I am so proud of me! Just wanted to share.

@statgrad: It is just that the card companies got greedy on all the % juice from the balance holders at 16.99% to 29.99% that the responsible people started to look like non-profitable customers. Some VP somewhere took all the $ made on the balance holders to his/her annual bonus and now that person is running with their tail between his/her legs...

@RogerTheAlien: No.

I too was puzzled with the "deadbeat" definition the first time I heard it thinking it was in reference to charged off accounts. As nataku83 said it is evidence of the demented greed mentality at major banks. I recognized that this happened when they replaced profits from growth with profits from penalties as the major revenue source. Maybe it started rolling when ATMs started to make money in fees versus being free...

@pecan 3.14159265: I flat-out refuse to pay an annual fee on a credit card. My CC has American Airlines miles, and Mr Ruthless and I take one international vacation a year, with the flight financed by the CC miles. We buy virtually everything we can with it, pay it off at the end of the month, etc. The bulk of my miles, however, seem to come every year when I try to finangle myself out of the annual fee (the first year is free). They won't, so I cancel the card, open a new one, and get 25k miles all over again. I know I'm dinging my credit, but we don't have any large purchases looming (we own a home, and have cash on hand to buy a car) so it doesn't seem to matter much.

@pkoutoul: You are exactly right and that is what that industry is doing.

@oneandone: Congrats!! Yaaaaay! Isn't it liberating?

@nataku83: As an aside from the topic, your statement got me wondering where those GM credits will go with the new GM...

@takes_so_little: That was the credit card industries' "Holy Grail". To figure out who would charge and carry enough balance to be glutonly profitable for the companies yet who would not default on their balance and get charged off.

There was this semi-famous case:

[www.upi.com]

"During a six-year period, Ruth Owens made payments totaling $3,492 on a Discover Card debt of only $1,895 that only increased due to accumulated late fees and other charges, even well after she made her final purchase, the Cleveland Plain Dealer reported. Discover eventually inflated her debt to a balance of $5,564 and filed a lawsuit against Owens in August 2003 for breach of contract."

By the card companies' definition this woman would have been a "great customer" until she finally defaulted.

If she had walked away from the original $1800 purchase she would have been better off than trying to pay sometimes here and there...

@babyruthless: Yep, I totally support doing what you're doing. I say, turn their greed against them.

The damage to your credit score from doing that yearly is probably reasonably minimal as long as it's not your only account and you don't do it more frequently than that.

@econobiker: You don't "own" your rewards points until they're redeemed, in most rewards programs. They could cancel them with impunity, most likely. But I have no idea if that is a GM program or an HSBC program.

@econobiker: Yeah, I've also wondered about that. My guess would be that they're going to disappear, since my "legacy" card gives 5% cash back, and that's way more than you'd get from the bank itself. It's too bad I never got to use them (I'm a big fan of GM vehicles), everytime I tried to purchase one of their cars, the dealership experience always ended in my storming out of the dealership in a fit of rage. I don't think new car salesmen have ever encountered anyone who
a) knows anything about the underlying vehicle mechanicals and
b) knows math

I ended up just getting a used Saturn, discount be damned.

The CC industry needs upwards of a year to a year and a half to implement the consumer-friendly provisions of the CARD Act and the previous. Will they implement annual fees or other restrictive measures quicker? Methinks so.

@oneandone:

Congrats! I can't wait for that feeling too. Seems like every time I make any progress though, there is a new car repair, or vet bill or something that keeps my wheels spinning. Slowly but surely....

The credit-card companies' wailing and gnashing of teeth over the CARD act is actually quite ridiculous. Worst-case scenario: they end up making a huge amount of money instead of an absurd amount of money. Best-case scenario: they end up even more profitable than they were before.

Really, CC companies get a slice off the top of pretty much everything: merchant flat-rate fees, merchant transaction fees, finance charges, annual fees from the suckers who subscribe to them, any protection programs they manage to con you into buying... even without usurious rates and predatory lending, it's easy to sit and watch the cash roll in. Their only real costs above standard operating expenses seem to be rewards programs (which are more than covered by transaction fees) and defaulters. And it's on that second point that I dare to beleive they could make more money under the new legislation: there's plenty to be made shaving a bit off the top of virtually every monetary transaction and getting finance charges from responsible borrowers without incurring much risk.

@econobiker: That demented greed mentality is present at just about every major corporation in America.

I'm a deadbeat too, one who pays off their card each month. I got a nasty reminder that they are raising rates to "maintain the profitability on your account". What BS.

HERE'S MY SOLUTION:

They ought to change the law that if the rate is raised, that they issue a new card with the rate printed in big font what it is. That way people using it will know they may be paying that rate, and other people will see how high that particular card can go.

@oneandone: You should be proud of yourself! Sounds like the CC companies suckered you in during undergrad and tried to suck you dry.