Some Petal 2 Cardholders Are Getting Downgraded, With Fees Added

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Multiple holders of the Petal® 2 "Cash Back, No Fees" Visa® Credit Card — a card aimed at those with fair-to-good credit — received unwelcome news last week: Their no-fee cards will be replaced with a different Petal card that charges an $8 "monthly membership fee," equivalent to $96 a year, as well as other fees for late payments, returned payments and certain transactions.

It's the second shake-up for Petal cardholders in as many months. In May, some holders of the Petal® 1 "No Annual Fee" Visa® Credit Card were informed that their accounts, too, would start being charged an $8 monthly fee.

Here are the latest details on what's changing.

Only certain cardholders are getting downgraded

Petal confirms that only select cardholders received this notice, but the company declined to share the specific criteria that led to the change in terms.

"This change applies only to this specific segment of existing Petal 2 members," the company said in an email. "It does not apply to all Petal 2 members, and it does not apply to new Petal 2 applicants. For new applicants, and those who were not notified of a change, Petal 2 continues to be a card with no fees whatsoever."

Affected cardholders will have their Petal 2 account replaced by a Petal 1 Rise account that charges the $8 monthly fee and earns the same rewards as Petal 2 — up to 1.5% cash back on all purchases. The annual percentage rate on the card will remain unchanged, according to Petal.

The Petal 1 Rise is a card originally conceived for users with poor-to-fair credit. Given this change, there will now be two versions of the Petal 1 Rise: the version for the downgraded Petal 2 cardholders and the one for everyone else that has a $59 annual fee and earns rewards only with specific merchants.

Although the company didn't specify why terms are changing for certain cardholders, it did provide some context.

"While changes like these are not taken lightly, it is a relatively common industry practice for issuers to make changes to the products they are able to offer based on the economy and other factors," Petal said. "Such changes have been very rare for Petal but may happen from time to time."

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Cardholders can opt out

Petal 2 cardholders who don't want to be downgraded to the Petal 1 Rise can opt out via Petal’s app or by contacting the company, but doing so will result in the account being closed. An account closure can have a negative impact on your credit because it can reduce the age of your active credit accounts and/or increase your credit utilization ratio, both of which are factors in credit scores.

For many cardholders, it will make financial sense to opt out, especially if they’ve improved their credit enough to qualify for a different card with no annual fee. Timing is important, though. Applying for a new, lower-cost credit card before the Petal account is closed could enhance their prospects for approval.

Those who decide to keep the card and transition to the Petal 1 Rise will continue to use the same login information to manage their account. The new card is expected to be in mailboxes by Aug. 1, 2023, the same date the monthly membership fee goes into effect. 

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Cardholders should redeem cash-back rewards before opting out or else the rewards will be lost when the account is closed. Cardholders who transition to the Petal 1 Rise will continue to keep their cash-back rewards, according to Petal’s FAQ page.

What this means for Petal 2 cardholders

Credit cards change terms like credit limits, rates or incentives all the time, but for affected holders of the Petal® 2 "Cash Back, No Fees" Visa® Credit Card this is a major negative in nearly every way.

Instead of "no fees," it'll now cost nearly $100 a year to carry the card. That's far more expensive than other credit cards for fair credit, and even more than some cards for bad credit. Petal’s alternative option to close the account to avoid that fee may disrupt many credit journeys that the company initially set out to help.

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