Bank of Americas newest credit card offering appears to be an inversion of the typical model: Instead of rewarding spending and racking up more debt, it gives people cash for paying down their balances.
The card is intended as a way to bring in customers who carry balances on their credit cards but want to shrink them as many households now are looking to reduce their debt. Many of them already have some sort of account with Bank of America.
We think its an opportunity to gain share, said Charlotte-based retail products executive Titi Cole. Its good for them. Its good for us.
But its also a reflection of post-crisis financial regulations, which crimped the profitability of delinquent customers by limiting interest rate hikes and curtailing late fees. Thats given banks an incentive to reinforce positive behavior, said Tom Feltner, director of financial services for the Consumer Federation of America.
These customers still carry debt and are accruing interest. Having customers pay more of the balance will also reduce the risk of loss in a portfolio that saw billions in charges after the financial crisis. Bank of America can also continue to make money on swipe fees charged every time the card is used.
Bank of Americas new card, called Better Balance Rewards pays customers $25 every three months if more than the monthly minimum is paid on time. It also pays $5 per quarter if the customer has another account with the bank.
Bank of America has been repositioning its credit card business to narrow its scope over the past three years since charging off $67 billion in the business after the financial crisis, CEO Brian Moynihan said on the banks latest quarterly conference call.
The bank has sold off some of the non-U.S. credit card units acquired in the $35 billion purchase of MBNA Corp. in 2006, and has worked off its noncore portfolio to about $3 billion from $15 billion at its peak.
Bank of America now reports that its loss rate is the lowest since 2006, and its delinquency rate is at a historic low.
"Weve got it about now where we want it," Moynihan said on the call.
Consumer credit card outstanding balances at Bank of America fell to $94.8 billion in 2012, down 7 percent, according to the banks latest annual report. Charge-offs in the unit fell 36 percent to $4.6 billion.
The banks card services division, which includes credit and debit cards, earned $4.1 billion in 2012, down 30 percent from the year before.