The New York Times tackles a current credit card issue in a story today at its Tech-Node, Wirecutter. It cites changes at Chase’s Sapphire Reserve, a card it has named as one of the best travel cards in the U.S. market.
The topic comes as no surprise, as Mercator noted in a 2017 report on the sustainability of Premium Travel Cards. Sometimes issuers give too many benefits, and the market will tighten. Here is a perfect example.
At issue here is the revenue dynamics of credit cards. It is a relatively straightforward model. Unless the credit card is considered a “profit center of one,” you can’t afford to throw in benefits that exceed the accounts revenue potential and risk assessment.
Indeed, as this Mercator Advisory Group reports, the ROA rebounded in 2018 and is on course for a healthy 2020. (See here).
The Chase Sapphire Reserve, one of the most popular travel rewards cards we’ve seen over at Wirecutter, recently dropped some news: The perks are going up a little bit, and the annual fee is going up a lot.
The Chase Sapphire Reserve’s $450 annual fee just went up to $550 for new users (the new rate kicks in for existing users whenever your renewal date rolls around, starting in April 2020). The increased fee is paired with a handful of new perks, like DoorDash credits and a Lyft Pink membership.
Many banks besides Chase are truncating or cutting beloved credit card benefits, and many are also raising their credit cards’ annual fees. In 2019, American Express hiked the annual fees on certain Delta-branded credit cards and instituted new restrictions on Centurion Lounge access. MarketWatch reported last year that Citi ended its Price Rewind feature.
The NYT emphasizes that card issuers are well within their rights to adjust programs.
Banks have the legal right to stop offering you benefits like statement credits and lounge access, even if they provided them to you when you originally signed up. They also have the right to change the rates and fees from what you agreed to in the first place (though limitations may apply).
And although banks have to give you notice about changes to your rates and fees, they’re not legally required to provide you with advance notice of changes to your rewards. Some banks do anyway: For example, Amex gave cardholders about three months’ notice when it decided to stop offering the Priority Pass restaurant credit.
It is not that credit card companies do not make money, particularly when times are good. In fact:
Credit card issuers are raking in revenue at a rapid clip, and higher annual fees are likely a big contributor: Annual fee revenue was about $600 million in the first quarter of 2015, but by the first quarter of 2018, it had nearly doubled to a whopping $1 billion, according to 2019 Consumer Credit Market report (PDF) by the Consumer Financial Protection Bureau (C.F.P.B.), a government agency that helps protect people from unfair business practices.
But not every account aspect can change.
For significant changes (such as adjustments to rates and fees, or how your interest is calculated), your card issuer is required to give you 45 days’ notice, according to the C.F.P.B.
Credit card companies face limits on how drastically they can change their terms, so you don’t need to worry about a sudden and astronomical increase to your late fees, for example. (The government regulates many aspects related to credit card fees, including a rule that banks can’t charge you more than $28 for your first late payment.)
The Times suggests one of three corrective actions:
- Cancel your card
- Downgrade the account (Chase Sapphireà Chase Freedom)
- Ask for a retention offer.
But, not to worry: as this Mercator Advisory Group reports, the ROA rebounded in 2018 and is on course for a good 2020. (See here).
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
