Consumer alleges lost opportunity when reward dollars are at risk

When shopping for a credit card in 1993, the client was attracted to one of his bank's cards which included a reward program for first-time homeowners. The more spent with the card, the more he accumulated reward "dollars" which could be credited toward an undiscounted (i.e. posted rate) mortgage from the bank.

However, by the time the client was in a position to use the reward "dollars" for a mortgage, 10 years had gone by and much had changed in the mortgage market. Banks and other mortgage lenders were now offering discounts off the posted rates to virtually anyone who asked. In fact, the bank no longer offered the mortgage "dollars" reward – but didn't end the program for existing cardholders.

When the client tried to cash in the accumulated reward "dollars" (he had spent nearly $68,000 on his credit card over the years), he found that the discount on the bank's mortgage rate that had been arranged through a mortgage broker was a much better deal than his alternative of paying the posted rate of interest and crediting his accumulated reward "dollars" toward the mortgage.

The client complained that the bank was taking advantage of cardholders by – in effect – undercutting the value of its own reward program by offering better value through discounted interest rates. After considering the complaint, the bank offered to convert his reward "dollars" into another points program or to give him cash equal to about 0.5 percent of what he had spent on the card over the years.

OBSI investigated the case, and found that the rewards program documentation was clear – cardholders could not combine the reward "dollars" with any other offer including discounted mortgage rates. In the particular circumstance, it was evident to us that the client couldn't get both the attractive discounted rate negotiated by his mortgage broker and the reward "dollars" credited toward the mortgage.

However, we also saw the client had a point – the reward program no longer had any value in the marketplace and it was easy to see how clients would feel they had lost an opportunity to accumulate valuable rewards in another card program.

We looked at alternative cards that the client could have used and found that the bank's offer to convert his points to another program was fair, as was the other alternative offered, a cash-back equivalent of 0.5 per cent, was an industry standard reward benefit for a no-fee card. We recommended that the client accept the bank's offer.