The Dangers of Credit Card-Linked Discount Offers

Several credit card companies -- including Bank of America, PNC, Regions and U.S. Bank -- are either considering or actually rolling out new loyalty programs that link credit cards to coupon offers.

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When consumers pay with their cards, they'll be offered discounts at the store where they're shopping or at other stores. There's no actual coupon -- consumers just have to pay with their card at the designated store within a certain time frame to automatically get the deal, says Ken Lin, CEO of Credit Karma, which provides credit scores and credit-card reviews.

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For example, a Best Buy customer who hasn't been to the store in a year may see an offer on his online credit-card statement. The offer could be to spend $100 and receive a $20 credit to encourage the customer back into the store. If the customer does go to Best Buy, all he needs to do is to spend the $100 with the credit card with the offer. The card company would then credit the user $20 automatically.

It sounds like a convenient way to get discounts, but Lin says there are two big drawbacks to these loyalty programs.

Loss of privacy. Card issuers have long tracked the spending habits of their customers. But these new programs will leverage that data to help retailers make more sales, and consumers will be hit with more potentially intrusive targeting down the line, he says. Trading privacy for a few dollars off a purchase is not worth it, Lin says.

Increased spending. Sure, discounts are great. But the savings offered by these loyalty programs are meant to encourage consumers to use their credit cards more. As a result, consumers will spend more than they normally would.

Lin says that consumers should not apply for a new credit card just to get these card-linked offers. Instead, when choosing a credit card, look for ones with a low interest rate or generous rewards (such as travel rewards).

If you have a card that offers this type of loyalty program and you don't want to participate, check with your card issuer to find out what your options are. Most of the companies that offer these programs do offer a way for cardholders to opt out.

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