Should Credit Cards Reward Good Behavior?

By Beverly Harzog. Last updated 8 July 2014. 11 comments

There's a new credit card in town, and it wants to give you a helping hand. Bank of America launched the BankAmericard Better Balance Rewards card earlier this month.

Here's how it works: You can earn $25 in cash rewards each quarter if you make your payment on time and pay more than the required minimum payment.

So, for a three-month period, if you pay an amount that exceeds your minimum required payment each month, you can earn up to $100 per year. If you have more than one eligible account with Bank of America, then you get an extra $5 each quarter, which means you can earn up to $120 a year. (See also: 6 Ways to Get Paid for Saving Money)

This Isn't the First Credit Card With Good Intentions

This Bank of America card takes a pretty unique approach by rewarding consumers who pay more than the minimum payment. But it isn't the first card to want to give you a big hug.

The Discover Motiva Card and the Citi Forward Card come to mind. Discover doesn't promote the Motiva Card, but you can still find it online if you look hard enough. This card gives you back 5% of your monthly interest charges as a Cashback Bonus.

The Citi Forward Card is no longer available, unless you're a college student. This card reduces your interest rate up to 2% if you pay your bill on time and stay under your credit limit.

Then we have the Citi Simplicity and the Discover it Card. These cards want you to know that if you make a mistake, they'll still love you. Well, the Discover it Card will still love you after one late payment. But make another mistake, and you're in the doghouse with a late fee.

Are These Credit Cards Good for Consumers?

I'm really fascinated with the response to the BankAmericard Better Balance Rewards card. Some consumer advocates and experts have said cards like this encourage irresponsible behavior. With the Bank of America card, the argument would be that it encourages consumers to carry a balance.

With the Citi Simplicity and the Discover it Card, the concern is that it encourages people to get lazy about paying on time. I can see both sides of this argument. It would be a little too easy to relax about your payment if you think there isn't any punishment.

But if the late payment is reported to the credit bureaus, your credit score gets punished. I haven't seen anything in the fine print that promises you won't be reported to the credit bureaus if you make a late payment. And since this also means you're carrying a balance, there's that annoying compound-interest thing to worry about.

ARTICLE CONTINUES BELOW
What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

But let's take a look at the other side of this argument. What if you suddenly lose your job, your kid just got braces, and your car needs new tires? Your cash flow this month is shaky, so you take advantage of the window to pay a little late. In a case like this, the "forgiving" credit card doesn't intend to change your payment behavior. It's just there as a safety net to catch you if you suddenly fall.

Not Everyone Who Carries a Balance Is Irresponsible

OK, so this brings me to another point. Not only does the media tend to focus on the negative side, but they sometimes imply that those who carry a balance are irresponsible. See, I don't think that's fair.

Sure, there are many people who are in credit card debt because they're irresponsible. But in my experience, these people often "own up" to it when they realize what they've done.

But we all need to remember that there's another segment of the population that's still in trouble from the recession. These folks are using their cards to pay the rent and the grocery bill. And to buy their kid shoes.

The post-recession world we're experiencing now is a little different from what we've seen before when a recession ends. Even if all the economic indicators point to recovery, the dark days aren't automatically over for everyone.

How the Bank Benefits

I make a living keeping my eye on the banks and their products. So believe me, I do see how these cards benefit the banks. The extra $5 that consumers get if they have more than one Bank of America account? Clearly, Bank of America is encouraging consumers to open more accounts. But I don't see anything deceptive about their approach. Bank of America is trying to increase customer loyalty, which all for-profit companies do. If you don't need another account, don't open one.

And, of course, when consumers pay late, the banks still make money from interest even if they forgo the late fee. But let's drill down to the main question — do these credit cards help any group of consumers? My answer is yes, they do. So whether or not the bank benefits doesn't concern me, unless of course, they use deceptive tactics.

So what do you think? Do you think credit cards that reward good behavior are helpful? Or do you think they encourage bad behavior?

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Guest's picture

You made a good point about how not everyone who carries a balance is irresponsible. I agree with you that it's not fair. Just because someone is in debt doesn't mean they are necessarily irresponsible. It is hard to stick with a strict financial plan and things don't always go accordingly. People do own up to their mistakes and when things don't go as planned.

Beverly Harzog's picture

Hi Cami -- Sometimes life is just plain messy. Bad things happen even if you're doing the best you can with your cash flow. I just wanted to acknowledge that group.

And even if people did get into debt due to irresponsible behavior, owning up to it takes guts. It's hard to get out of debt and it takes persistence. Basically, I don't like to see people criticized for debt because we've all made mistakes, including me.

Guest's picture

I found this really interesting. I think customer loyalty to Bank of America is pretty high anyway so I don't know if thats one of their main focus's with this card (although they obviously thought of this). Having a safety net of sorts does seem like a major perk for anyone in situations like you described here.

Beverly Harzog's picture

Hi Kelly -- Thanks for your comment! I do agree with you that loyalty is pretty high at BoA. And since they're offering such a small incentive to open another account and the terms are clear, I don't really have a problem with their approach.

Guest's picture
Shafi

Of course, Credit Cards should reward Good Behavior. It's one of the ways to maintain sanity among customers. Many folks keep buying with credit cards just so they can get more rewards. That is not good behavior.

Beverly Harzog's picture

Hi Shafi -- You're right. Spending more just to get rewards is not good behavior. You only come out ahead if you use your rewards card for things you needed to buy anyway. And, of course, pay your balance in full every month.

Guest's picture

Great article. I would say it is a way to get people to carry a balance and not good for consumers. Even if the person is responsible, they are still losing money in interest. Just give me my reward points or cash back and cut the crap. I recently blogged about a Discover card offer I received in the mail saying if you spend over $2,000/mo for so many months they would give you $500.

Beverly Harzog's picture

Hi Alan -- You make a good point. That's certainly the other side of the argument. It's never a good idea to carry a balance. But unfortunately, there are folks who need their cards to make ends meet. For those individuals, getting a little back when they pay more than the minimum is helpful.

Guest's picture

On one hand, the notion of rewarding on-time, higher-than-minimum payments sounds like a great idea, especially for people who normally do those behaviors anyway. You can make $100 a year just for doing what you always do! On the other hand, compare that reward ($100) to the value of the rewards you can get from a different credit card. See which one will give you the best rewards over the span of a year. Go with that card. (I'm assuming that you don't carry a balance. If you do, then focus on APR rather than rewards).

Beverly Harzog's picture

Hi MaryAnne -- Great comment! I totally agree with you that it's better to use a rewards card and get a better return. But only if you don't carry a balance, which you also pointed out.

This BoA card is targeting those who carry a balance regularly. This might be because they're irresponsible, as I mentioned in the article, or because they're struggling to pay their bills. So for folks who carry a balance, I think this card could be helpful.

Guest's picture

Yes, credit cards SHOULD reward good behavior, but unfortunately that's bad for their bottom line.

That's why I love PerkStreet Financial. They reward you for saving up money in your checking account, and spending responsibly with a debit card. They even promote something called "Wallet-Free Wednesday" through social media, encouraging their customers to not purchase that day.

Cool stuff!