Those credit card miles can take off without you

Margo R. Kaufman has a cautionary message for people who choose credit cards based on their reward programs: Those rewards can be taken away.

About two years ago, Kaufman and her husband, Boris, accepted an offer for a Capital One “No Hassle Rewards” card. The couple used the card regularly, mainly because Margo loves to travel and it promised two airline miles -- on any carrier -- for every dollar spent. They accumulated 55,785 miles, which is enough to get a ticket to Europe on some airlines.

But before they could use the miles, Boris died. Capital One responded by canceling the card and rescinding the miles, Kaufman said.

“I feel that I have been misled, deceived and cheated,” said Kaufman, a 77-year-old retired college professor living in Sacramento. “It’s a real scam.”

The credit card company’s response is not unusual, said Emily Davidson, a spokeswoman for Credit.com, a San Francisco-based credit card research company. Davidson called five of the nation’s biggest credit card issuers, and all but one said they would have done what Capital One did, in light of its contention that Boris was listed as the primary account holder and Margo merely a “user” of the account.

The only big issuer that said it wouldn’t cancel the rewards on the death of the primary account holder was Discover. It said it would write a check for the value of the miles to the cardholder’s estate, Davidson reported.

The others -- Citibank, Chase, HSBC and American Express -- said the miles would be forfeited.

After being contacted about this story, Capital One agreed to give Kaufman the cash value of the card’s accumulated rewards.

According to spokeswoman Pam Girardo, the bank changed its policy a few months ago -- before the Kaufmans’ card was canceled -- and now pays earned rewards in cash to surviving authorized users who are heirs.

Girardo said she didn’t know why Kaufman initially wasn’t able to cash out the rewards.

Reward programs have become the primary gimmick used to lure new customers, but credit card issuers are under no legal obligation to maintain the programs that they advertise, experts said.

“In the interest of good customer service, some credit companies do notify their customers when they cancel their reward programs or change the qualifying terms,” said Lynne Strang, vice president of communications for the American Financial Services Assn. “However, to our knowledge, there’s no federal law that requires companies to do so.”

Under the Truth in Lending Act, companies must tell cardholders when they change the interest rate or grace period on their cards, Strang noted.

But the notification requirement “does not specifically apply to changes in reward programs used to attract and retain customers,” she said.

The only rules that might govern the reward programs are state contract laws, said Fritz Elmendorf, spokesman for the Consumer Bankers Assn. in Arlington, Va. But most credit card contracts say the issuer can change rates and terms at will.

The credit card industry is hotly competitive, so most issuers don’t arbitrarily nix their reward programs. But if a card is canceled, companies ordinarily rescind the unredeemed rewards, said Gail Hillebrand, senior attorney with Consumers Union in San Francisco.

Cards typically are canceled when a cardholder chooses to close the account or when a cardholder has a history of late and missed payments and the issuer decides to withdraw the offer of credit.

In either case, the cardholder would normally have enough time and warning to redeem rewards first.

Kaufman’s problem may have been handled differently if she had been an official joint holder of the account, Elmendorf said. Consequently, whatever awards were granted on the card were not hers to keep.

Kaufman, who believed she was a joint holder, countered that she was her husband’s only heir, so if the miles belonged to him, they should have passed to her in any case.

But, she said, the Capital One supervisor with whom she spoke said the company’s policy when a cardholder died was to wipe out the rewards, not pass them on to heirs.

Capital One’s Girardo said she didn’t know why the supervisor was unaware of the company’s new policy.

Situations like Kaufman’s are rare, said Hillebrand of Consumers Union, but if reward programs remain popular as baby boomers age, such issues are likely to come up more often.

About 85% of credit cards will carry rewards by 2009, market research firm Packaged Facts forecasts. That’s up from just 10% in 1999.

The best advice for consumers bent on rewards, Hillebrand said, is to make sure their cards are in their own names and are based on their own credit histories. Husbands and wives may want separate cards rather than joint accounts.

That may prove beneficial not only in situations like Kaufman’s but also when both cardholders are alive and spending.

That’s because many credit issuers limit the amount of rewards that can be earned in any one year on any one card. By holding separate accounts, a husband and wife may be able to double the amount earned.

In addition, a consumer in a jam similar to Hillebrand should complain, Hillebrand said. If an issuer wants to keep a good customer, it should be willing to provide a new card and transfer the miles to it, she said.

“That’s simply good business,” Hillebrand said. “But can you compel them to do that? Probably not.”

Consumers should complain to the credit card issuer’s regulator too. Most card companies are regulated by the Office of the Comptroller of the Currency.

It wouldn’t necessarily help Kaufman, Hillebrand said.

“But I tell people to make the complaint,” she said, “because if the regulators hear the same complaints over and over, they might start asking the banks about their policies in these areas. Otherwise, all the regulators hear is what the banks tell them.”

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Kathy M. Kristof welcomes your comments but regrets that she cannot respond to every question. Write to Personal Finance, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or e-mail kathy.kristof@latimes.com. For previous columns, visit latimes .com/kristof.