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Credit card issuers increasingly using rewards offers

By Megan Woolhouse
Globe Staff / March 6, 2011

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Credit card offers are proliferating, with companies offering a wide array of enticements to consumers.

Some cards promote cash-back offers of as much as 5 percent, while others feature generous new rewards incentives or free airline miles.

“Some of the rewards cards that are out there now are some of the best offers we’ve ever seen,’’ said Andrew Davidson, senior vice president at Mintel Compermedia, a Chicago market research firm. “We’re seeing increased competition for a group of consumers who already own credit cards, and the offers are more aggressive and innovative.’’

While this trend is a potential boon for card users, consumer advocates warn that people still need to be cautious.

Credit card shoppers should be aware that rewards offers can be especially tricky: Issuers can change the terms of a rewards offer at any time or make them expire unexpectedly, said Joshua Frank, senior researcher at Consumers for Responsible Lending, a Washington-based nonprofit.

Fortunately, understanding credit card offers and obligations has become a little bit easier, he said. The Credit Card Accountability, Responsibility, and Disclosure Act, enacted last year, has made those offers more transparent and easier to read, outlawing tactics credit card companies have used to hide interest rates and loan terms, and capping fees and penalties.

“The credit card act has made a very big difference,’’ Frank said. “But consumers need to avoid borrowing on a credit card if they can, because it’s still just a high-priced loan.’’

With the improving economy, card companies have stepped up their marketing considerably, and consumers need to understand the benefits and drawbacks of the new offerings, consumer advocates said.

US credit card offers have more than doubled to 1.4 billion at the end of last year from 551 million at the end of 2009, according to Mintel. Mintel also found that the majority of the offers — 8 out of every 10 — are for rewards cards.

Davidson said three major credit card issuers — JPMorgan Chase, Citibank, and American Express — are issuing the most offers, but if the economy improves, he expects more banks to follow suit. Many of the cards being marketed offer a zero percent teaser rate, or introductory rate, to applicants with good credit. That rate typically vanishes after the first year, replaced by rates in the range of 11 to 27 percent, according to www.creditcards.com, a website that advertises credit cards and receives a bank commission for every sale it makes.

Despite improvements spurred by the new credit card law, shopping for the best terms can still be confusing.

Frank said credit card offers are typically loaded with a mind-boggling array of terms and numbers, including an annual prime rate for balance transfers, a rate for cash advances, and formulas for calculating overdraft protection and foreign transactions. He said the credit card act has helped a bit, but the lack of uniformity in billing makes it difficult to compare credit card offers.

“There’s still a lot of numbers on there,’’ he said of credit card bills. “Probably too many for a consumer to really compare across products.’’

Some credit card companies are also coming through the backdoor, soliciting small-business owners, freelancers, and others to use credit cards geared specifically for business. Those cards offer fewer protections because they were exempted from the industry regulations that took effect last year.

The cards can be risky, Frank said, because unlike with standard credit cards for consumers, a bank can change interest rates, fees, or other card terms without notifying a cardholder, and charge hefty fees for exceeding a credit limit.

Ben Woolsey, director of marketing and consumer research at creditcards.com, said rewards cards mostly target consumers with good credit. Banks have an incentive to do so, he said. They offer consumers rewards, but charge merchants who accept the cards extra to pay for them.

Woolsey said some of the best offers he’s seen include a credit card offered by JPMorgan Chase bank offering new customers $150 cash back if they spend $500 on the card in the first three months. Another card offers 25,000 free airline miles to new customers and waives an annual $85 card fee for the first year.

Megan Woolhouse can be reached at mwoolhouse@globe.com.