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Responsible Credit Card Use Phenomenon

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Is it just me or have credit card companies been on a big “responsible credit card use” bandwagon lately? I think credit card companies, with the pending credit card legislation, have been on this responsible use kick because they see consumers in a bit of a revolt.

For years, cheap credit has fueled American consumption and lenders have been eager to feed that hunger. Now that the average household credit card debt has become less of a trivia statistic and more of a sobering reminder of our economy’s fragility, I think credit card companies are responding to what the climate is demanding – more financially responsible credit cards.

It makes perfect business sense too. Rewarding someone for good behavior and paying on time is better for the customer and the company. While it’s great to collect fees, I think it makes better business to just be a responsible partner in the relationship. Borrowers don’t walk out on their responsibilities, lenders don’t gouge their customers because they think they’ll default, and everyone is happy.

If you don’t believe the trend, here are some examples…

Discover Rewards Debt

The first case was Discover and their Discover Motiva card. The major appeal was to consumers with credit card balances because you get 2 months of interest back when you pay on time each and every month. This was coupled with a 3.99% introductory APR on balance transfers for twelve months, which isn’t as awesome as a 0% balance transfer, but certainly tailored to people carrying balances and getting them to repay on time.

Citi Lowers APR for On-Time Payment

Then, if my memory serves me correctly, next was Citi rolling out their Citi Forward card. The Citi Forward offered a 0.25% APR reduction when you pay on-time for three months plus 100 points to the ThankYou Network. The APR discounts were cumulative up to 2%. There is also a 0% promotional APR for six months to lighten the debt load.

Chase Blueprint

Next up, we have Chase offering up their whole Chase Blueprint program with their four different ways of paying (Full Pay, Split, Finish It, Track It). It coincided with a whole rebranding of their credit card lineup so that their cards had fancy names like Slate, Sapphire, and Ink (probably more).

The program doesn’t reward you the same way Citi and Discover does, by giving you APR reductions, but it does put you on a structured path towards debt repayment.

American Express Charge Cards

Finally, American Express has been heavily promoting their line of charge cards as a way to help people spend responsibly. They’re even getting consumers into the design phase of a card with their new American Express Zync card and it’s various cashback “packs.”

(I think the trend is especially pronounced because I watch a lot of television on Hulu.com and I spend a lot of time online. I see the same ads repeated over and over again. Lately, the Chase Blueprint and the AMEX Charge ads have been everywhere)

I like where the trend is going and I’m eager to see some features that reward consumers who don’t have credit card debt. Have you seen this trend too? What do you think about it?

{ 18 comments, please add your thoughts now! }

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18 Responses to “Responsible Credit Card Use Phenomenon”

  1. Just be careful with these weapons of mass financial self-destruction. Read the instructions boys and girls before you blow yourself up!

    Happy weekend all!

    Best,

    Sam-urai

  2. Tracy says:

    I may be a bit skeptical, but credit card companies are still looking for ways to get you to spend money you might not have earned yet and once you don’t pay the card off within the month (and sometimes even when you do) they charge you money for borrowing their money, and you end up paying more for the item you purchase rather than less. I am not sure this is ever a winning proposition for the consumer, no matter what the rewards. I have reduce my credit card debt to almost zero and I don’t think any rewards program is going to convince me to let it rise again. I think the best time to make a large purchase is when you have the money set aside for it.

  3. Izalot says:

    I figured the credit card companies are being more “responsible” due to people spending less and saving more. Get that much deserved LCD TV and don’t worry about that debt as we have ways to help you to pay it off.

    As for me I’m a huge fan of reward programs and a credit card that offers a restructuring of my payment plan is not going to cut it.

  4. Paige says:

    I haven’t really noticed any of these programs, but I do not watch a lot of tv. I think that these cards sounds like a good thing for the consumer with a lot of debt. I just want a good rewards card.

  5. I believe they are just playing the political game. The next time they get subpoenaed to testify in congress they will be able to highlight all their efforts to help consumers be more responsible. In the meantime they will also continue to find new ways to increase their revenue.

  6. zapeta says:

    I think they just want their customers to continue to re-pay their debts rather than default so they’re putting a ton of tools out there to help them do it.

  7. I agree with Tracy. Credit card companies have one thing in mind, to help you spend money. That is their mission underneath all of the marketing which seems on the surface they’re trying to support a more frugal and financally smart America.

    Rewards and p”ats on the back” are the best way for them to prolong a relationship with customers. They figure the longer the relationship, the better the chance you’ll end up paying them a fee or an interest payment.

    All that being said, I’m not against having a credit card, but it should be paid off in full every month. No exceptions.

    I echo Financial Samurai in closing -
    “Just be careful with these weapons of mass financial self-destruction.”

  8. Jim says:

    I don’t disagree, but credit card companies make money off customers who use their cards and pay it off every month. I’m sure in their portfolio they like a percentage of these “reliable” spenders whom they don’t have to worry about. They earn a percentage fee on everything I charge, which equals dollars to their bottom line.

    Yes, they certainly make more money off fees and interest, but they lose a lot more when they have to charge off a debt because someone can’t pay. I’d think they prefer responsible over irresponsible borrowers?

    Credit is like any tool, you can use it for your benefit or abuse it to your detriment.

  9. daenyll says:

    I use my rewards card for most purchases and bills, and have never carried a balance from month to month. It’s nice to see cards rewarding the good reliable customers that consistently make them money, even if it’s not huge amounts in fees or interest.

  10. pmulroy says:

    Jim,

    Most banks don’t make any money off customers who charge their cards and pay in full every month. It is Visa and Mastercard that make money with each transaction, but Visa and Mastercard are not the ones who are lending you money.

    Therefore, the Citibanks and Chases (who are the ones lending you money) of the world definitely do not want these the “reliable” customers who pay in full every month that you mentioned. What they would like is for you to have as large a balance as possible that you can reasonably pay interest on every month.

    Note:Discover and American express work differently in that they make money from each transaction and are also the ones loaning you money if you have a balance.

  11. Ned Carey says:

    I am a big believer in rewarding for good credit and penalizing people who are late.

    One problem with that scenario is the credit cards have been shortening the time to pay. You used to get an honest 25 days, Now most cards seem to be 20 days to pay and they take 10 day get you the statement.

  12. aua868s says:

    well said Ned Carey…completely agree with you!

    • Ned Carey says:

      Thanks for backing me up. This is an issue that no one else seems to be talking about. So I am glad to know someone else is concerned also.

  13. eric says:

    I’ve seen all of these cards too. It’s better than nothing for sure.

  14. kitty says:

    @pmulroy “Most banks don’t make any money off customers who charge their cards and pay in full every month. It is Visa and Mastercard that make money with each transaction, but Visa and Mastercard are not the ones who are lending you money.”
    This is what I had thought, but I found out only recently this is not entirely correct. Visa and Mastercard earn franchise fees from banks for transaction processing; they are also paid a fixed amount per transaction by retailer – about $0.05 per transaction. But the 2-3% fees retailer pays (called “interchange fees”) from each purchase are split between the bank issuing the credit card and retailer’s bank, with the bulk of it going to the issuer. E.g. if the interchange fee is 2% and you spent $100, $1.75 would go to the bank that issued your credit card, and $0.25 will go to the retailer’s bank.

    Google for “interchange fees” if you want more detail.

    Bottom line is – banks that issue credit cards do earn money on those of us who pay in full. Sure, this isn’t that much money, but it’s also low risk money since people who pay in full don’t generally default. Low risk = low reward.

    • pmulroy says:

      Kitty,

      I stand corrected.

    • Ned Carey says:

      Kitty said
      >Sure, this isn’t that much money,

      It’s actually a phenomenal amount of money. 1.75% for about 1 and 3/4 months from time of charge to payment works out to 1% a month or 12% a year.

      Loaning at 12% a year return when they are borrowing at 1-4% is an incredible spread. Especially as you mention – low risk.

  15. jsbrendog says:

    i don’t know, imo, if you can’t pay the balance in full then you can’t afford it and shouldn’t be using a credit card (non emergency division of course) but to each his own. Sometimes you just can’t help it when ish hits the fan.

    at least they’re seemingly trying to help the consumer, although I don’t know if I believe it is sustainable. they’re about making money, and they do that by you using your card and not paying it.


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