When a new bank issues your retail card, changes in the rewards and the card’s terms can follow
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“Great news!” the letter from RetailChain might say. “We’ve selected Bank X as our partner for your RetailChain card, with all the great benefits as before!”
There might even be a celebration sale or bonus points for using the new card. If you have used the card only once, when you signed up for it to get a discount, you may even consider digging it out of your wallet again.
But other, less-cheery information about the switch might slip by you in the small print. When you have a store card — either one used only in stores, or a “co-branded” card that works like a regular credit card elsewhere — changes can affect the card’s financing terms as well as the retailer’s rewards program. The changes aren’t always welcome.
“Cardholders get a form, which everybody ignores, about the change in ownership of the accounts,” said John Grund, a card industry consultant at First Annapolis. “It’s wrapped around [an announcement], ‘Here are your rewards.’ ”
It’s not uncommon. In the first half of 2015, chains including Costco, Nordstrom and Brooks Brothers have announced bank switches which will affect millions of cardholders once the transitions are complete. Those changes are apart from travel cards, which frequently modify their rewards programs in moves that are closely watched by program devotees.
“It’s a very busy marketplace right now,” Citi Retail Services Chief Marketing Officer Molly McCombe said. “There’s some healthy competition out there.”
If your favorite store card changes banks, don’t be blinded by the marketing or dulled by the fine print. Armed with some card know-how, you can spot obscure switches and take advantage of opportunities to get a better deal — or at least protect yourself from a worse one.
First, you need to understand how it works: Almost all store cards are backed by an issuing bank. Synchrony Bank, formerly called GE Capital, and Alliance Data Systems unit Comenity Bank specialize in store cards, while Citi and Capital One are also major players in the business. The bank keeps the card loans on its books and handles payments, fees, interest calculations and other financial chores. The bank and the retailer have an agreement that governs how they’ll split the earnings from the card, and may also share any losses.
Why it matters to consumers
This behind-the-scenes deal matters to cardholders because the deal gets renegotiated every so often, and if the retailer and the bank part company, there is an elaborate handoff of charge accounts to a new bank. In this transition and afterward, significant aspects of the rewards program or the card terms, or both, can be up in the air.
The old bank may handle customer service for a while through an interim agreement, but at some point the new bank, as the owner of your account, will take over. Unless, that is, the retailer itself handles servicing of the accounts, which is rare.
Your account’s terms will remain intact, at first. But at some point the new bank will want to adjust some of the terms — if only to have the agreement reflect the lender’s name and location.
“Eventually, they’ll want to make changes” to conform to the bank’s usual practices, said Glen Trudel, a partner at Ballard Spahr who represents card issuers.
“Cardholders get a form, which everybody ignores, about the change in ownership of the accounts. It’s wrapped around [an announcement], ‘Here are your rewards.’ ”
|— John Grund|
Here are some changes to look for, and what to do about them:
New card, account number, expiration date. You should receive ample warning by mail or email about the issuance of a new card, which will potentially carry a new account number. Some switch-overs may let you keep your present number.
What you can do: If you use a co-branded card to make automatic payments, list all the merchants and services that are auto-billing your card, and be prepared to give them your new account number. Registering a co-branded store card to automatically pay recurring bills — say, from your cellphone carrier, cable TV service or highway toll authority — is one way to maximize rewards on the card. But forgetting to switch just one of these to the new account could cause a late payment, collection hassles, and possibly even a black mark on your credit report.
New bank, new service. The customer service you are used to dealing with will change to the new bank, in most cases. So there will be a new 800 number to call and a new website to learn how to use. Perks such as a free monthly look at your credit score may be changed or dropped. The exception is when the retailer keeps control of account service.
What you can do: Watch out for minor differences in service practices that can make a difference in your pocket. For example, if your old bank was lenient about late payments when you called and explained, don’t assume the new bank will do the same. And any alerts you depended on from your old bank, such as text warnings when your balance reached a certain level, will probably need to be set up again.
“Some may be more willing to waive late fees than others,” Trudel said. “Every bank has its own way of dealing with their customers.”
New bank, new terms. A successor clause in most credit card agreements allows your account to be sold without your say-so, as long as the terms stay the same. But once the new bank has your account, you will probably get a notice of new terms and conditions. For example, most agreements have a choice of law provision that names the card issuing bank’s state as the legal authority governing the agreement. The choice of state law has a profound effect on your rights in disputes about the debt.
What you can do. Check the section of the agreement for dispute resolution and see if you can opt out of mandatory arbitration for disputes. Many issuers allow a window of time for new customers to reject the mandatory arbitration clause by writing an opt-out letter. Such clauses block you from taking the issuer to court or participating in a class action against them, meaning you will forgo awards from class settlements.
Changes in financing terms. The new bank can, with advance notice, reduce your credit limit, increase fees, or raise your interest rate for new purchases. The notice period for most changes is 45 days. If the bank just outbid the previous issuer for the accounts, it may well be looking for ways to generate more profit from them.
What you can do: If changes to account terms are deemed significant, under the Truth in Lending Act, you have the right to reject the changes. The notice should include instructions on how to reject the new terms. This means you can pay off your existing balance over time, but cannot make new charges. The repayment periods for this “protected” balance are outlined by consumer protection law.
Trade-offs and tension in store-bank partnerships
Keep in mind that transitions don’t always go as planned for the retailer, and the first thing you hear about the card may not be the last.
“From the retailer’s perspective, the less changes there are, the happier they are,” said Alex Johnson, senior analyst with Mercator Advisory Group. “They don’t want to rock the boat.”
Nordstrom, for example, is keeping the servicing of its card accounts — which it currently holds in its own bank, Nordstrom FSB — while it sells the underlying $2.2 billion in card loans to TD Bank Group. TD becomes the exclusive issuer of new in-store and co-branded cards, but Nordstrom emphasized continuity for customers.
“Our U.S. based Nordstrom employees will continue to be the point of contact for all our customers,” spokesman Dan Evans said in an email reply to questions. “Nordstrom Rewards program and their rates and fees will remain unchanged.”
From the retailer’s perspective, the less changes there are, the happier they are. They don’t want to rock the boat.
|— Alex Johnson|
Mercator Advisory Group
But financial terms on Nordstrom cards got tighter before the change was announced. The card agreement Nordstrom filed with regulators dated Jan. 1, 2014, had a penalty interest rate of 27.9, a 3 percent cash advance charge and a $35 late payment fee. The card agreement available on its website in July 2015 has penalty interest of 29.9 percent, a 5 percent cash advance charge and a $38 late payment fee.
Such changes are unlikely to be noticed by new applicants signing up for the card, intent on Nordstrom rewards, but they sweeten profits for the bank that holds the card loans. If rates and fees generate more money, the retailer may be able to negotiate a better deal with the card bank and channel that money into richer rewards for users — thereby boosting its sales.
“Most of the time the rewards get better, not worse,” Grund said. Many store cards are inactive, and the retailer may use the switch to make special offers that will prod people back into being active card users. But the money to sweeten the rewards pot “has to come from somewhere,” he added. So watch out for higher costs embedded in the fine print of the card’s terms.
Rewards don’t always make a smooth transition to the new bank, however. In some cases the rewards program can even break from the card issuer. Participants in Caesar’s Entertainment Total Rewards program were jilted in 2013 when Bank of America dropped the casino company’s partnership but kept the credit card accounts. BofA switched cardholders to a general travel rewards scheme. Earned rewards at Caesar’s were honored, but the BofA cards ceased to generate new ones. Comenity Bank became Caesar’s new partner and issued Total Rewards cards, but users of the BofA card had to start from scratch and apply for a fresh card from the new issuer.
“In some cases [reward programs] get much better, but not always,” said Jonathan Gelfand, managing director at industry adviser Partner Advisors. “They can get worse.”
|STORE CARD SWITCHES|
|Store cards that annnounced deals with new banks in the first half of 2015|
|Merchant||Old Bank||New Bank||Announced|
|Nordstrom||Nordstrom FSB||TD Bank||5/6/2015|
|Source: CreditCards.com research|
|Note: Nordstrom card balances totaled $2.2 billion. Most store card deals do not reveal the number of accounts or amount of balances involved.|