Issuer closes card, empties out your cash rewards cache
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Dear Cashing In,
Recently, my bank canceled my credit card account with no prior notice. All the cash rewards have been wiped out. There is nothing negative on my credit, and the action is just based on their judgment. According to the letter the bank sent to me a week later, they stated they had the right to cancel the account at their will. How can I get my rewards back, and what law protects me from the bank's robbery like this? – Bin
There are several reasons why a bank might decide to close your credit card account.
Let’s look at the situation from the bank’s point of view. What does a bank want out of a credit card customer? It wants customers who are profitable – who use the credit card (which generates fees for the bank). And it certainly does not want customers who are not going to repay the money they owe.
Through that lens, you can begin to imagine some of the reasons banks cancel customers’ accounts. If you become a poor credit risk, or repeatedly fail to make your payments, or if you file for bankruptcy protection – all of those are reasons banks can terminate your account.
The bank could also shut down your account if it suspects you are involved in questionable activities, such as suddenly charging huge amounts at shady offshore casinos, or churning expenses merely to gain reward points (known as “manufactured spending”).
Another common reason for account shutdowns: inactivity. If you don’t use your card for a long time, especially if it has no annual fee, the bank is not making money on you. It could be losing money on you. Sometimes it will cut its losses by cutting you out.
Unfortunately, when you sign up for a credit card, you acknowledge that the bank can close your account at any time, for any reason. For example, the terms and conditions on the American Express Delta SkyMiles card say the bank can “cancel your account, suspend the ability to make charges, cancel or suspend any feature on your account, and notify merchants that your account has been canceled or suspended … We may do any of these things at our discretion, even if you pay on time and your account is not in default.” This is a common clause in credit card agreements. You accept those terms when you receive a card.
Also unfortunately, if you have a reward card that gets canceled, you typically will lose any reward points or cash back associated with the bank that offers the card. If the rewards are airline miles or hotel points, those will typically remain intact, but bank rewards usually will be erased. That would include most cash-back programs.
There are a few steps you could take:
- Check your credit report. Make sure there are no errors that are leading your bank to cancel your card.
- Call the bank. Explain that you believe it is unfair for them to cancel the cash-back rewards that you have earned. Then tell them you are planning to …
- File a report with the Consumer Financial Protection Bureau, a federal agency that collects complaints and works to resolve them. Some people have reported that banks were able to restore their awards when their accounts were canceled, but of course there are no guarantees this will happen in your case.
Your situation is also a reminder of the general rule that you should not hoard points. It’s better to redeem them in a timely way, so that they won’t become devalued over time. You also don’t risk losing them if your account is closed.
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