By Eileen A.J. Connelly, AP Personal Finance Writer
NEW YORK (AP) — Not every letter from a credit card company is bad news these days.
While millions of card users received notices of interest rate hikes and new fees in recent months, a select portion learned they're getting new perks.
Citigroup Inc., for example, let certain customers with cards that carry the American Airlines logo know they now get 1.2 miles for each dollar they spend, up from a 1-mile-for-$1 ratio. JPMorgan Chase & Co. similarly upped the miles-to-dollars ratio for their British Airways card by 25%, to 1.25 miles for each $1 spent. Chase also boosted the ability to rack up rewards on Marriott cards.
The credit card industry calls these upgrades "earnings accelerators." They are designed to make it more appealing to use one card over another — to "place our cards at the top of their wallet," Citi spokesman Sam Wang put it.
But just because you have one of these cards, or a similar reward card from a different bank, doesn't mean you'll automatically get an upgrade. Citi, for example, limited its enhancements to customers with good track records.It may seem like odd timing for banks to expand some rewards programs, after trimming many of them in the months leading up to the credit card reforms that kicked in last week. But the reason behind the enhancements is simple: those reforms cut into banks' credit card profits by restricting tactics like over-the-limit fees and interest rate increases. Now, they're looking to replace some of those earnings.
One strategy is to increase income from fees. And one big target for this is customers who use their cards frequently, but pay their balance off each month, meaning they pay little or no interest.
Most rewards cards carry an annual fee, usually topping out around $75. But the real moneymaker is the transaction fees that merchants pay. Every time a card is used, between 1 and 2.2% of the transaction is siphoned off in fees that get sent to the bank that issued the card. These fees totaled more than $40 billion in 2008, according to the Nilson Report, which tracks the card industry.
Another issue that's driving rewards program improvements is the general shift from credit card use to debit card use, which generate lower transaction fees.