Karl Marx never owned a credit card, but if he had, he’d probably have something to say about the way card issuers have been treating their customers lately. In the past year, the credit industry has amped up the rewards and promotions they offer to those customers with “excellent” credit ratings – while seemingly ignoring everyone else. While the trend may not result in outright warfare between the proletariat and the bourgeoisie, the growing divide between “rich” and “poor” credit cards is certainly raising a few eyebrows in the finance industry … and for good reason.
Let’s start out by taking a look at what’s been going on in Average Joe’s neck of the woods. In Fox’s latest briefing on the state of the credit industry, they report that interest rates for “no frills” credit cards meant for consumers with average or poor credit ratings rose by 8 basis points to 15.11%. And while owners of these average cards will have to start paying more interest on their balances in the future, the interest rate for prime cards stayed exactly where it was.
But it’s not just the rising costs that are fleecing the “average” consumer. Credit card companies have also done little to assist people with no credit history or poor credit history as they attempt to build good credit in the post-CARD Act economy. These days, it’s impossible to sign up for a credit card before you turn 21 unless you find a guarantor for your account. Because of this, many recent college graduates with full-time jobs are being forced to apply for “secured” credit cards. These cards tend to stick them with painfully low credit limits and big annual fees, and they seldom, if ever, offer a rewards system.
It seems like the only person who cares about the little guy anymore is Suze Orman – which doesn’t help much, since the prepaid debit card she endorses is a piece of garbage.
The problem is that while card issuers are letting their low-end products slide, they’re showering their top customers with more rewards than ever before. Consumers with stellar credit – a 720 FICO rating or higher – can get rewards worth hundreds of dollars just for signing up. For instance, the Chase Sapphire Preferred card now comes with 75,000 bonus points that are valued at $900, according to a recent Time article. Citi now offers 80,000 bonus points valued at $10,060 for its ThankYou Premier credit card.
So why are the rich getting richer? Well, you simply have to look at the card agreement to find out. Many of these promotions require consumers to shell out thousands within the first month of opening their account if they want to max out their signing bonuses. This, conveniently, will max out the issuers’ earnings through interchange fees, and it’ll increase the likelihood of a revolving balance. On top of that, the cards themselves carry staggeringly high fees that only the wealthy can afford – the Sapphire Preferred costs $95 a year, the ThankYou Premier costs $125 and the Platinum card costs a jaw-dropping $175.
According to the Wall Street Journal, roughly 60% of the card offers in the first quarter of 2011 went to households that earned $75,000 or more annually. Additionally, the lending rates that card issuers have to pay to issue lines of credit is at an all-time low, so they have the freedom to attach ridiculous incentives to their products. In short, credit card issuers want rich people to sign up for cards so that they can squeeze them for every dime they’ve got. It’s an understandable business practice, but it’s also alienating the industry from America’s fastest growing demographic – those people with no credit, poor credit and fair credit ratings.
And how do credit issuers plan on making this up to the average consumer? Well, your guess is as good as ours.