Since 1992 it's been a party for consumers using so-called rebate cards who have made the commitment to charge everything (including groceries, doctor bills, college tuition and insurance premiums), and who have the discipline to payoff the outstanding balance each month. We've heard all the stories, including the one about the guy who charged his heart bypass surgery, earned two free airline tickets and never paid a dime in interest. Or the executive who charges all his company expenses on an airline card, pays it off each month, and takes his wife, first class, to Japan each year.
Guess what guys ? The party is over !
This month the GE Rewards MasterCard decided to go after the cardholders who charge, payoff to avoid interest and collect cash-back based on their purchases. GE told cardholders if you're not paying at least $25 per year in interest charges you're going to have to shell out at least a $25 annual fee.
It's a bit ironic for GE to levy an annual fee on anybody. When General Electric launched the GE Rewards MasterCard in 1992 it carried an annual fee, a high interest rate and a very complicated rebate offer. Within a week of the launch General Motors and Household Bank rolled-out the GM MasterCard which blew the pants off GE's offer. The GM MasterCard carried no annual fee, an interest rate at least 3% below the GE card and a very easy-to-communicate rebate offer. To boot the GM card was widely endorsed while the GE card was panned by consumers and the media.
Within six months GE revamped its entire program. They dropped and refunded the annual fee at a cost of $5 million. The interest rate was shifted to a tiered interest rate based on credit risk. Eventually they simplified the rebate program. Today the GE card is the best cash-back program in the country.
Now GE has come full circle and says "we want the annual fee back for those customers who pay us no interest but collect our cash back rewards".
GE has now set its sights on the "freeloader" or the "deadbeat".
In case you're confused a "freeloader" or "deadbeat" is a cardholder who charges an average amount and pays it off each month to avoid interest. Three quarters of the income stream to card issuers flows from interest charges. As a matter of fact a consumer who charges and pays off would have to charge $45,000 per year to generate enough revenue to match the interest revenue generated by a typical consumer carrying a $2,000 balance.
Let's face it GE has picked up some pretty smart consumers who figured out if you charge enough and pay-it-off each month you can come out way ahead. Truth is: cardholders who charge the national average of $3,000 per year and pay-off each month only generate about $25 per year for GE. This barely covers the cost of sending statements, issuing the card and doing all the other administrative stuff. Hey . . . GE is losing money on these cardholders and probably does not care if these "freeloaders" move on.
Is this the writing on the wall for non-revolving cardholders ? . . . . . You bet !
Other issuers will jump on this bandwagon just as soon as the flak from GE dies down. Any no- fee rebate VISA or MasterCard program is looking closely at how to boost income from cardholders who never pay interest and charge average amounts.
The advice is: pay more than the usual attention to any notices coming from your card issuer. You may find your cardholder agreement to be drastically modified with new, and higher fees, to penalize you for not only paying late but also for paying off (or too early).
It is unlikely any card issuers will get rid of the grace period but watch out for more fees and new ways to target the freeloaders.
