Walt Serafin, a manager for a biotechnology company in Kansas City, Kan., is getting an iPhone as a reward from American Express Co.
That’s not what U.S. card issuers and their lobbyists predicted could happen when they opposed legislation limiting abrupt contract changes such as interest rate increases. The American Bankers Association, a Washington-based trade group, said the law would penalize cardholders with high credit scores, making them subsidize losses from lower-scoring consumers.
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The bill was passed by Congress anyway and signed by President Obama in May. Most of its provisions go into effect Feb. 22. Instead of being punished, Serafin and others with credit scores above 750 continue to receive rewards and promotional offers as banks battle to retain premium customers, said Ben Woolsey, director of marketing and consumer research at CreditCards.com, an online resource for cardholders based in Austin, Texas.
Credit card offers
The growing competition for wealthy consumers with the best scores is “the final frontier in the credit card business,” said Curtis Arnold, founder of CardRatings.com in North Little Rock, Ark.
In August, JP Morgan created the Chase Sapphire card, which targets households with incomes exceeding $120,000 and rewards holders with a point for every dollar they spend. Sapphire cardholders have been redeeming rewards for travel, and the card is meeting JP Morgan’s expectations for performance, said Laura Rossi, a spokeswoman for the bank, in an e-mailed statement.
JP Morgan also offered new customers 100,000 airline miles in November for spending $2,000 on a co-branded British Airways Signature Visa card within the first three months of signing up for the card.
In October, AmEx introduced the Premier Rewards Gold Card, offering triple points on airfare purchases and double points on gasoline and groceries. The card awards 15,000 bonus points for purchases topping $30,000 in a calendar year. The $175 annual fee is waived for the first year.
New York-based Citigroup Inc. and Discover Financial Services in Riverwoods, Ill., offer qualified customers cards with zero percent annual interest on balance transfers for up to 12 months. Simmons First Visa Platinum and Iberia Visa offer cards charging less than 8 percent interest to borrowers with “excellent” credit, according to the banks’ Web sites. – Bloomberg
“These are the customers the banks are vying for,” Woolsey said. “They’ve come through unscathed.” Credit card write-offs, or loans deemed uncollectible, jumped 59 percent to $89 billion last year from $56 billion a year earlier, according to R.K. Hammer Investment Bankers, a Thousand Oaks, Calif.-based adviser to card issuers. Banks may lose $5.5 billion in interest income because of the legislation this year and $11 billion in 2011, based on estimates by R.K. Hammer.
While lenders will need to find ways to make up the lost income, they won’t reduce affluent cardholders’ “precious” rewards, said Samir Kothari, co-founder of BillShrink.com, a company in Redwood City, Calif., that compares pricing and terms offered to consumers for about 170 credit cards. Issuers may introduce charges such as inactivity fees for customers who don’t use their cards, he said.
“It’s a real high-wire act: charge enough to restore severely sagging profits, while at the same time not chasing off the customers you need to grow,” said Robert Hammer, chief executive officer of R.K. Hammer.
For people with lower scores, it’s a different picture. They’re finding it harder to get credit as banks scaled back lending amid the deepest U.S. recession since the 1930s. The Federal Reserve’s quarterly survey of loan officers released Nov. 9 showed 58 percent of banks planned to reduce credit limits for borrowers with lower credit scores before the legislation took effect. Fifty-three percent of banks said they planned to increase the minimum required scores for borrowers with lower credit ratings, according to the Fed study.
