New York enacts law protecting credit card rewards

Did you know that in most cases you can lose your credit card rewards if you close your account, or if the card issuer closes it on you (for inactivity, for example)? New York State has a new law that will provide residents with a grace period to protect their rewards.

“Credit card companies will be required to inform credit card holders within 45 days if their account or rewards program is modified, cancelled, closed or terminated. Unless the customer has engaged in fraud or misuse of the account, holders will then have 90 days to redeem or exchange their rewards points,” according to a summary of the legislation published by one of its sponsors, State Senator Shelley B. Mayer. The law will take effect on Dec. 10, 2022.

Its inspiration was an unpleasant experience endured by two of State Sen. Mayer’s constituents, Gloria and Wolfgang Armbruster. The Armbrusters say they lost more than 1 million Citi ThankYou points, which they claim were worth more than $50,000.

I don’t know all the specifics of their case, but some of the details don’t quite add up. For instance, our sister site, The Points Guy, values ThankYou points at 1.7 cents apiece. If the Armbrusters had 1 million points, that would equate to about $17,000 in value. They say they had more than 1 million points, but it would have to be about 3 million to equal $50,000. Nonetheless, the general premise is that they lost a lot of money – and you definitely wouldn’t want this to happen to you.

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It’s great to earn rewards, but don’t hoard them

This is also a good reminder of why you shouldn’t hoard rewards points and miles. These aren’t like your 401k. They’re very unlikely to gain value over time. In fact, it’s usually the opposite. Periodically, airlines, hotels and card companies make adjustments that devalue their points and miles – for example, requiring more points or miles to get a free plane ticket or a free hotel stay. This is a tool they use to keep program costs in check, and it’s essentially a form of inflation that erodes the value of your rewards stockpile.

Rather than trying to become a points millionaire, it makes much more sense to earn and burn your rewards strategically. That is, accumulate rewards up to a certain point but then use them. Consider this: A round-trip, first-class airline ticket between the U.S. and Asia tends to be one of the loftiest rewards redemptions. A trip that might normally retail for close to $10,000 could potentially be had for something like 100,000 or 150,000 points or miles. Viewed through that lens, sitting on a million (or more) points or miles is pretty extreme. Once you hit that stratosphere, it’s probably time to put your rewards to work.

Why you might lose rewards points or miles

Closing an account is perhaps the most obvious example of how you might lose points or miles. While this new law will protect New Yorkers once it takes effect, I still recommend redeeming rewards before closing your account. That’s especially important in other parts of the country not covered by this legislation.

Another common scenario is paying late. This could cost you some or even all of your rewards (especially if you fall 60 or more days behind), and your ability to redeem can be frozen while you’re in arrears.

Sometimes you can pay a reinstatement fee to get your points back.

You could also run afoul of a card issuer’s rewards program guidelines if you misuse the account by manufacturing spend (for instance, creating artificial spending such as sending a money order to yourself or buying excessive numbers of gift cards), selling points or engaging in other conduct they deem to be abusive.

Bottom line

Credit card rewards programs are a major perk of using credit cards – provided you pay your balances on time and in full to avoid interest. Debit cards rarely offer compelling rewards programs, and don’t even get me started when it comes to cash. Still, almost a third (31%) of rewards credit card users didn’t redeem any rewards in 2020, according to our sister site Bankrate.com.

I’m happy New York State will soon offer better consumer protections for credit card rewards programs, but sometimes we’re our own worst enemies. Make sure that you actually use your rewards, people!

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.