Is the credit card game coming to an end?


Want to get a LOT of points for not much money?  It is super easy thanks to the myriad of promos tied to loyalty credit cards.  Offers of 25,000 points or more just to sign up are rather common, as are waivers on the annual fees for the first year.  So why wouldn’t everyone just sign up for a bunch of cards and rake in the points?  Well, actually, lots of folks do.  But could that game be coming to a rather abrupt end in the near future?

The US Congress has passed legislation recently – expected to be reconciled and signed into law by the holiday weekend – that will greatly change the way the credit card issuers are able to charge fees and change interest rates on accounts.  This has many in the point-obsessed community up in arms, afraid that their gravy train may have finally dried up.  Why?  Because the companies are paying for the huge bonuses out of the money they are pulling in from the high fees they are charging the folks carrying a balance.

In many cases the people getting the points from the promos are never coming anywhere close to actually generating enough revenue – through annual fees, merchant processing fees on charges or any other means – to account for the bonuses being allotted.  In some cases the spread is $100 or more.  But the credit card companies continue to offer these programs so they must be profitable at some level, right?  That profit comes from folks who carry a balance on their loyalty cards, often at a ridiculously high rate.  But if Congress regulates those rates then where will the profit margin come from?  And if no profits, can the programs continue to be offered?  Certainly legislating against stupidity is a losing battle and probably one that no government should really be involved in, but it seems that it might actually be useful in this particular instance, at least from a macroeconomic perspective.

The math is really quite simple on these changes – when the profits disappear so will the perks.  The question is whether folks churning the cards will still be able to collect or not, and I really do not have too much sympathy for them if that avenue disappears.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.
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