Credit card rewards can prove lucrative, earning you hundreds of dollars every year when you maximize spending with your card.
However, your habits and needs may change over time, causing you to reevaluate whether your card is worthwhile. If you calculate that your card is costing you more than the rewards you earn and decide to cancel it, you may forfeit any rewards you haven't redeemed.
On the other hand, if you don't use your card, miss payments and/or accrue debt, your card issuer may close your credit card account without notice due to inactivity, default or delinquency. As a result, you may miss out on redeeming rewards.
Regardless of why your account was closed, it can come as a surprise that you don't get to redeem your cash back, points or miles since these terms are often buried in cardholder agreements.
For instance, the terms for the Chase Ultimate Rewards® program state:
"Your points don't expire as long as your account is open, however, you'll immediately lose all your points if your account status changes, or your account is closed, for any of the following reasons," which include not making the minimum payment on your account within 60 days of the due date or filing for bankruptcy.
That's where a new bill in New York steps in to protect cardholders: The bill, S7104A, sets out a new ruling that will allow New York State residents whose credit card accounts are closed or modified to redeem rewards during a 90-day grace period.
The bill passed the New York Senate on July 22, 2020 and is waiting to be passed by the Assembly. After that, it needs to be signed by the governor before becoming law. Currently there is no expected timeline on when this may occur, but the bill will take effect one year after it's signed into law.
Below, CNBC Select has all you need to know about the new bill and how it affects you.
How the new bill would protect NY credit card holders
According to the bill, "the purpose of this legislation is to protect credit card holders from the unmerited cancellation of their reward points by creating a grace period for the use of reward points after the closing of a credit card account."
New York State Senators cited in the bill that credit card rewards programs often have agreements that are not transparent. This is evident in the pages-long agreements you often receive after opening a card. Oftentimes, many of the key terms for rewards programs are buried and surrounded by jargon, making it hard for consumers to understand the exact terms.
The bill referred to one particular instance where, "a cardholder had just reached one million points (worth approximately $50,000) which they had saved up for use during their retirement, when the issuer closed their account and cancelled all their points." The bill doesn't explain the reason behind the account closure.
While losing those points technically didn't cost the cardholder any money, they lost a substantial amount of rewards that one can argue were rightfully owed to them. Under the new bill, the cardholder would still be able to redeem points for 90 days after their account was closed.
Three key points from the new bill
- Card issuers must send customers notice within 15 days of account cancellation, closure, termination or modification.
- Customers have 90 days to redeem, exchange or use any credit card rewards as allowed under their cardholder agreement, subject to the availability of rewards. The 90-day period starts on the date the notice is sent.
- The expiration of credit card rewards is unlawful.
These rulings don't apply to customers who commit fraud or misuse their credit card account or any related rewards program.
Right now, this law only applies to cardholders who are New York State residents. If you reside outside of New York and want to cancel your credit card but still have unused rewards, make sure you redeem or transfer them first. Many card issuers allow you to transfer rewards between similar cards from the same issuer, such as an Amex points card to another Amex points card. (Learn more about rewards programs and transfer options.)
