Value of credit card rewards being reduced

Credit card rewards have been important for many consumers when choosing their cards.  Credit card rewards can either be as cash back, discounts off selected goods or given in the form of goods.  As the Credit Card Act 2009 makes credit cards more expensive, many credit card rewards are being reduced.

Cash back rewards are when the credit card company gives back a proportion of cash spent on the card to the credit card user.  These cards rarely have good interest rates.  The cash given back is usually between 0.25% and 1% of the amount spent on the card.  There are some cash back cards that offer introductory rates that are far higher for the first few months that the card is held. At times this is as much as 5% of the amount spent.  

Other forms of cash back offers are affinity cards.  This is when a supporter of a charity or a political cause carries a branded card and a proportion of the money goes back to the charity or cause.  This tends to be a higher payout than cash back cards as there tend to be lower marketing costs with the cards promoted through supporters’ mailing lists.

Rewards can also take the shape of discounts in shops or free goods.  These are often branded in the name of the store or brand for which the discount or goods are offered.  Many brands offer these reward cards including car makers, department stores, airlines and hotels. Some large online retailers such as Apple and Amazon are also offering these cards which automatically give discounts on their sites.

The Credit Card Act 2009 has put in legal protections for consumers which are likely to reduce the profitability of credit cards, and so the choice of cards being offered.  As well as increasing interest rates on credit cards and tightening credit card criteria this has resulted in a reduction in rewards being offered.  Among the consumer protection clauses payments are made against the highest interest rates first.  These changes in general have reduced profitability for the credit card providers and so have reduced the rewards that they are willing to pay out.

Rewards tend to be used particularly aggressively to promote credit card deals for younger customers.  Under the 2009 Credit Card Act, credit card providers can no longer offer any “tangible items” in return for signing up for a credit card deal.