The New York Senate passed a bill on July 22, 2020 establishing a 90-day grace period for consumers to redeem their credit card rewards if they close or modify their existing accounts, making it easier for anyone who want to close a credit card to cash in their earnings The law, formally known as S7104A, is expected to be enacted by the governor.
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This could be good news for New York State residents who are considering making a change to their current line of credit cards, such as canceling a premium travel rewards card and opening a card at no annual fee.
The consumer-friendly rule will act as a counterweight to issuer’s growing crackdown on suspected credit card welcome bonus “gambling,” implying someone signs up for a credit card just to charge a bunch initial rewards and then cancel the account. The practice is costly for issuers, who make a profit from the exchange fees and interest charges, but have to pay the miles and points they award to cardholders.
According to the text of the bill, “the purpose of this legislation is to protect credit card holders from undeserved cancellation of their reward points by creating a grace period for the use of reward points after the closing a credit card account. “
What this could mean to you
This rule will take effect one year after its enactment and could make it easier for a consumer to try a new card for one year, cancel it, and retain the ability to use any winnings within the grace period. Currently, there is no standardized law that specifies how long a cardholder has to use accrued rewards once their account is closed.
If the law is adopted in other states, it could add an additional layer of consumer protection for issuers trying to recover rewards without merit, simply because smart card holders have found ways to maximize potentially lucrative rewards programs.
Last spring, reports emerged of several American Airlines cardholders closing their accounts and losing their rewards due to suspicion of fraudulent activity aimed at keeping their reward balance active. Chase’s infamous “5/24” rule was created to discourage the practice of generating credit card bonuses. American Express is widely known for closing accounts or recovering points based on what they consider to be misuse or misrepresentation of an account and, in some cases, will deny applicants who believe they have too many existing American Express accounts.
What to do if you want to cancel your card
If you plan to close a credit card and are unsure how your rewards will be affected, a good rule of thumb is to try to redeem or transfer any winnings before closing the account. If that’s not possible, here are some possible alternatives, though policies tend to vary by issuer and specific card:
- Cash back cards: Typically, with a card that gives you cash back, you will lose your winnings when you close the account. If you have another card within the same reward family, you may be able to group your rewards into another card. For example, the Citi® Double Cash Card has an option to convert your earnings into Citi ThankYou points so you can move your points to another ThankYou point accumulation card. Check the terms and conditions of your specific card.
- General rewards cards: Cards that earn an issuer-specific currency, such as Chase Ultimate Rewards or American Express Membership Rewards, can be linked, meaning you are likely to retain the full point balance if you close one of your cards, as long as you have another one that earn the same type of points But know that many welcome bonuses come with the warning that they will be withdrawn if you close your account within a certain period of time. If you’re thinking about signing up for a card just to get a juicy welcome offer, know that you’ll probably have to keep it for at least a year or you’re not eligible for that point bonus.
- Airline or hotel cards: Rewards earned with these cards are deposited into your loyalty account for that program and should not be affected by the closure of the card, unless you have violated the terms of any welcome bonus you have received or the loyalty program rules . However, the points expiration policy of the airline or hotel program will apply.
Bottom line
If other states adopt this or a similar rule, it could benefit consumers, particularly those who tend to save a large amount of their rewards before collecting. The restrictions related to COVID-19 have caused many to adjust their spending habits, moving away from travel expenses and dining in other areas such as groceries and broadcasting. It may no longer make sense to keep one or more of the credit cards you currently have depending on how you used to spend. The new law in New York makes it easier to change your mind about your card, but still enjoy the benefits you’ve accumulated in a rewards program.
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