Originally created 07/06/97

On the money



NEW YORK --George Yacik and his wife Connie used their Ford-Citibank co-branded credit card often to earn rebate points toward the purchase of a new car.

But Mr. Yacik was growing a little uneasy about the program. Too many people were cashing in their rebates toward the purchase or lease of Fords, Lincolns, Mercurys or Jaguars, said Mr. Yacik, who monitors the credit card industry as vice president at SMR Research in Budd Lake, N.J.

"I thought they were going to do something to cut it back. I didn't know what," he said.

So last November, the Yaciks cashed in $2,500 in accumulated rebate points and bought a 1996 Mercury Sable. It turned out to be a good call.

Ford and Citibank announced this past week that they were canceling their rebate program, joining a number of co-branders that have ended or revamped their agreements because the original deal had become too expensive.

Consumers are now going to have to get used to skinnier incentives, credit card experts say. Rich deals - like the 3 percent rebates on food purchases offered by Giant Food Inc. and M & T Bank of Buffalo - are numbered. That deal cost both companies millions.

"The typical rebate is 1 to 2 percent," said Michael Auriemma, a consultant in Westbury, N.Y., who helped put together the Citibank-Ford deal.

The cutbacks mean it will be harder than ever for cardholders to find a deal that makes economic sense, said James J. Daly, associate editor of the publication Credit Card News.

In most frequent flier plans, for example, cardholders have to charge $25,000 worth of goods to get a free trip. That doesn't make economic sense for someone paying 18 percent interest on that money, Mr. Daly said.

"If you're really looking to control your borrowing costs, this is not the card for you," he said.

Last September, General Motors Corp. halved the maximum rebate consumers could earn on its gold credit card, jointly issued with Household Bank. GE Capital Corp. started charging $25 annual fees to cardholders who routinely pay off their Rewards MasterCard.

Bank of America and Sunoco recently lowered their rebate for nongasoline purchases to 1 percent from 2 percent, but increased the rebate for gas charges on its co-branded card to 4 percent from 3 percent.

"We knew they were expensive programs to handle," said Helene L. Moehlman, senior director and industry analyst at Fitch Investors Service. "I would think that even if their days aren't numbered, the programs would be substantially watered down."

Co-branded cards became popular in the early 1990s. By offering discounts, rebates and other special deals, credit card issuers hoped to get people to charge more. Their commercial partners hoped to increase sales of their products.

The idea took off fast, and soon consumers were able to get rebates on a wide array of items, from gasoline to groceries. Now, nearly 40 percent of all credit cards are co-branded or affinity cards, which are issued to groups or organizations, according to RAM Research Group in Frederick, Md.

But as consumers cashed in, the commercial partners paid dearly. Brittain Associates Inc., a credit card research firm in Atlanta, said 460,000 people cashed in Ford rebates alone. Last year, Ford said the Citibank program, plus similar ones in Canada and Great Britain, amounted to a $4.1 billion liability for the company.

Issuers also were losing money by the fact that cardholders were paying down their balances monthly, thus avoiding interest charges, and demanding cards with no annual fees, industry experts say.

"Value-added programs have now become problem-added programs," writes CardFlash, RAM Research's newsletter.