GM to Cut Gold Card Rebates
General Motors Corp., joining what seems to be a budding trend in the credit card industry, is cutting back the benefits available to holders of its gold MasterCard.
Company executives said the cuts are being implemented because the rebate costs appear to outweigh the return to GM in marketing its cars and trucks.
“When we benchmarked the benefit of the gold card, we found we were in an overly competitive position,” GM spokesman Dean Rotondo said. “It was in excess of what was needed or being offered” by others.
GM joins General Electric in tightening the rules on cards that pay back in some way based on usage. Earlier this month, GE said it would begin imposing a $25 annual “account maintenance fee” on GE Rewards MasterCard holders who pay off their balances every month and do not incur interest charges.
The GE card provides cash rebates of up to $140 annually for charges placed on the card. The GM card, which has been very popular, also provides rebates, but in the form of discounts on GM vehicles.
Both cards entered a growing market of payback cards, pioneered by Discover (which returns cash to customers at the rate of about 1%, with no annual fee) and Citibank (whose co-branded card with American Airlines was the first major airline mileage card, returning about 2% in purchase value but with a $60 annual fee.)
A few years ago, the major airline cards put on an annual mileage cap (generally 50,000) but have otherwise reported success with the co-branded cards. That inspired GM, GE and others to start payback cards in an effort to win market share by offering rebates with a low or no-fee card.
The GM card has two levels: blue (regular) and gold (premium). The gold card, which carries a $39 annual fee, had allowed holders to rack up rebate credits of as much as $1,000 a year and $7,000 over seven years. Under the new terms, those amounts will be cut by half--to $500 a year and $3,500 over seven years--the same terms offered by the no-fee blue card.
Gold-card holders will continue to get some additional benefits such as travel assistance, extended warranties and accident insurance. Such benefits, though, are typical for gold credit cards, many of which are available with no fee.
The GE and GM moves are part of a “growing trend of going after those people who are trying to beat the system, who pay in full and charge abnormally high amounts to get the rebates,” said Robert B. McKinley of Ram Research, an industry research and publishing firm in Frederick, Md.
Bank credit cards derive revenue from three sources: annual fees paid by cardholders, fees paid by merchants who accept the card and interest paid by cardholders who do not pay off in full every month. Interest is by far the largest of these--many issuers have dropped their annual fees, and competition have reduced the merchant fees. Thus, customers who don’t incur interest charges aren’t very profitable. They have become known in the industry as “freeloaders” or “deadbeats.”
The advent of rebate cards that charged little or nothing in fees--the way GM’s and GE’s cards work--exacerbated that situation.
Rotondo said only about 8% of GM cardholders have gold cards and that their terms and rebate earnings will not change until the annual fee is due.
