This article was written by Michael, founder of CreditCardForum, a website for credit card reviews and deals.
The $4 price tag we’re seeing at the pump today feels like a throwback to summer 2008, when oil peaked at $147/barrel and the national average was $4.11 per gallon. What will summer 2011 look like? In this economy it’s hard to say, but if oil keeps creeping up, expect to see some big changes with your gas reward cards.
What happened in 2008?
Back in spring of 2008 (shortly before I started CreditCardForum) I was contacted by American Express to participate in a focus group regarding their SimplyCash business card. They were paying a few bucks, so I decided to do it.
As it turned out, the entire 2-hour long focus group was all about the card’s gas rewards program. Up until that point, it gave an unlimited 5 percent cash back. However, due to rising fuel costs, they were exploring alternative options:
- 3 percent rebate without a cap
- 3 percent rebate with a high cap
- 5 percent rebate but with a relatively low cap
There were around a dozen or so business owners in the focus group and each of us were asked our opinion on the possible changes. The majority seemed to favor the 3 percent. On the other hand, I vehemently argued that if they took away my 5 percent I would stop using the card altogether. In all honesty this was a bluff–I was just trying my hardest to persuade them to keep it!
Sure enough, later that summer I received a notice in the mail that the gas rebate on my SimplyCash account would be scaled down to 3 percent. However, it wasn’t just American Express turning the notch down on fuel rewards. The Discover Open Road went from 5 percent to 2 percent, Chase Freedom modified their program and a slew of gas station affiliated cards also watered down their rebates.
What will happen in 2011?
As of the first week in May, we saw the return of $4 gas in many states, with the national average being $3.96 (that’s only 15 cents off the ’08 record).
The higher gas prices go, the less profitable these cards are for their issuers. Simple math tells us that if the interchange (processing) fees are only 2-3 percent and the card is paying out 3 percent to 5 percent in rewards, something has to give, especially when there are small business owners using these cards to fuel up their fleet of vehicles, milking the rewards for all they’re worth.
It is for these reasons that card issuers are once again re-evaluating their gas rebates. In April, the American Express Blue Cash Preferred and Everyday were launched, to replace the former Blue Cash credit card which gave up to 5 percent on gas, groceries and drugstores. Meanwhile, some of the gas-station specific cards have also recently restructured–i.e. instead of giving 5 percent at their stations, they are now giving only 10 or 15 cents off per gallon (which equals out to be 2.5 percent and 3.75 percent, respectively, on $4.00 gas).
I wouldn’t be the least bit surprised if the PenFed gas card eventually has to succumb to this same fate, since to the best of my knowledge, PenFed credit union is the only player left that still gives an unlimited 5 percent at all stations. Another card I could see being cut is the Chase AAA Rewards Visa, which gives 5x points on the first $500 spent per month at gas stations (great card but unfortunately it’s only offered to those living in Northern California, Nevada and Utah).
Ultimately, if gas prices don’t exceed their current levels I think most of the carnage to the reward programs is over for now. However if prices keep going up, expect to see more cards either setting caps and/or reducing their rebate percentage on gas.
