I stumbled on an idea so obvious and so simple that I am truly amazed more credit card companies have not adopted it. For years, credit card companies have rolled out elaborate rewards programs, also known as loyalty programs, that offer consumers cashback, points, miles, and other rewards. Over the past two years, many credit card companies have cut back on these deals, but most still offer rich rewards programs.
Personally, I love these programs. I get 3% rewards with one of my cards. Airline miles with another. While these perks are often the reason I choose to use one credit card over another, I would still use credit cards if the programs were cut back, especially if all credit card companies cut back on these loyalty programs and I had no other options.
With that said, I would gladly give up my rewards if that meant hundreds of thousands of consumers would get to pay lower interest rates. It is a tough time to be a credit card company and most are losing money. The reaction has been to raise interest rates, often on very loyal customers. This is eroding consumer loyalty and creating anger and mistrust amongst all credit card users.
So maybe its time for credit card companies to cut back on rewards programs to reduce their expenses rather than raise interest rates to increase their revenues. A person with good credit who gets a 2% rate increase for no reason is likely to tell a lot of people how his or her credit card company gave them a raw deal. A person who was earning 3% rewards, but now earns 1% rewards, is less likely to be livid, and thus less likely to spread negative sentiment about their credit card company.
As I’ve said before, I am appalled by the actions most credit card companies have been taking lately, particularly when it comes to interest rate increases. But I believe credit cards are essential to our economy and I understand credit card companies need to make money. I just think they’re taking the wrong approach. In these difficult times, I’ll be the first to stand up and sacrifice my rewards if that will save someone from a 2% rate increase.
If our credit card executives realized this, they’d be cutting down loyalty programs instead of increasing interest rates. All things considered, being kind to consumers is the ultimate loyalty program.
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