No More Credit Card Arbitrage?

Discover Card recently announced that changes to the Discover Cardmember Agreement will take place for the billing periods after October 1, 2007.

The change to the minimum monthly payment is particularly important for those of you who practice credit card arbitrage. Many people use 0% Balance Transfer Credit Card Offers to take cash advances, then place the money in a high yield savings account to earn interest. They can then pay down their cash advance at 0% interest while the remaining money earns a higher interest rate in their savings account. Here is more information about how to do a 0% Balance Transfer.

Here are the important changes to look out for (copied verbatim from the Discover Card notice mailed to our house):

Minimum Monthly Payment:

If more than 90% of your New Balance consists of special-rate balance transfers, we may increase your Minimum Payment Due to a maximum of 4% of the New Balance if it would otherwise be less than that. Your New Balance is shown on your monthly billing statement.

Late Fees:

We are changing the Late Fee. This is the fee imposed if you do not make a required payment as of the Payment Due Date. The Late Fee will be based on your balance as of the end of the billing period for which we did not receive timely payment. If that balance is $250 or less, the fee will be $19; if it is greater than $250, the fee will be $39.

Cardmembers have the option of declining these changes, but Discover will then automatically close the account and the balance must be paid in full.

Many credit card companies have also stopped allowing free balance transfers and now charge a fee to do so. Look for more credit card companies to make similar changes to the balance transfer fees or minimum payment schedule as they make it more difficult for people to make as much money from credit card arbitrage.