In case you missed it, Phase 2 of the recent credit card legislation becomes effective today – Monday, February 22, 2010.

 

Perhaps the most significant change consumers will notice is on their monthly statements.  For the first time, issuers must show customers how long it will take to pay off their current balance if they make only the minimum monthly payments on the existing outstanding balance.

 

How about 10 years on a balance of $3,000 at 14% interest?  TEN YEARS.

 

This is going to be an eye-opener for many consumers.

 

In the meantime, while making the necessary changes to comply with the new rules, credit card issuers are busy looking for ways to replace anticipated lost revenue.

 

What we are witnessing today is a knee-jerk reaction to the recent legislation…the end result being a rush to replace lost income as quickly as possible.

 

Prior to the new legislation taking effect, the larger card issuers slashed credit lines, increased interest rates, added new fees, and closed millions of undesirable accounts.

 

Now the rush is on to find additional new fee income.

 

Apparently, the target du jour is rewards card programs.

 

From what I’ve been reading, these card issuers are looking to…

 

• Add annual fees where none exist today
• Increase annual fees for cardholders already paying an annual fee
• Downgrade some existing reward programs
• Introduce new rewards programs to justify higher annual fees

 

It makes me wonder what kind of consumer research, if any, these banks conducted that allow them to reach the conclusion that consumers are willing to pay more and receive less.

 

It’s almost like a magic act.  How can we charge people more for fewer benefits while convincing them it’s a better value than before?  This is a tough time to be a copywriter for credit card issuers and their agencies.

 

In the midst of the Great Recession that is changing the way many consumers save and spend money, we find the big credit card issuers attempting to charge more while delivering less overall value.

 

This just doesn’t seem like a credible business model to me.

 

Remember, the key to most rewards programs being viable for the card issuers is “breakage.”  They are counting on some significant number of rewards granted to go unclaimed or unused by rewards card customers.

 

This fact of human behavior enables copywriters to convince consumers to pay higher annual fees in anticipation of receiving the exciting trips and merchandise so temptingly described in word pictures and photos appearing in colorful brochures promoting these programs.

 

Personally, I believe credit card issuers need to call an immediate halt to their product development efforts, take a giant step back, and rethink their entire business model, including pricing.

 

Working against the majority of today’s new and revised rewards programs is the Internet and its many social media sites.

 

You can bet that over the next several months, every one of these credit card rewards programs is going to be dissected and discussed in excruciating detail – much to the dismay of the folks that created and tweaked them for their own benefits.

 

It’s as if the credit card issuers are already planting the seeds for the government’s next legislative effort against them – this time it will be directed at confusing and abusive rewards card programs that were thrown together at the end of 2009 and early 2010.