It’s a question many previously loyal department-store credit card holders are asking themselves as merchants go out of business, taking their credit card accounts and hard-earned rewards points with them.

Actually, that’s not exactly correct, consumers are still liable for their outstanding balances. But some of the incentives that lured them into making those purchases or opening that account have been taken away from them, and that does not bode will with many cardholders.

More than two dozen U.S. retailers have filed for bankruptcy since the start of 2008, and the outlook for 2009 isn’t any better. The International Council of Shopping Centers estimates that 146,000 stores will close this year due to the decline in consumer spending. And credit card companies are experiencing record levels of charge-offs as the soaring unemployment rate and economic chaos leaves many credit-card holders unable to pay their debts. Widely reported by the media, credit card delinquency rates at most major financial institutions have been steadily rising since early 2008, and the do not appear to be topping out anytime soon.

Lenders who sponsor store-branded credit cards face some of the biggest challenges, as they try to collect debt consumers racked up at now-defunct retail chains such as Mervyns, Circuit City and Linens ‘n Things. So called “private label” credit-card debt in the U.S. totaled $111 billion as of January, according to the industry source Nilson Report. Customers in many cases were wooed into applying for these credit accounts through being issued rewards certificates redeemable on future purchase, such as a $10 off coupon for every $200 spent at Linens ‘n Things. A message on Circuit City’s website states “Circuit City rewards are no longer redeemable. We apologize for any inconvenience this may cause.”

Lenders such as JP Morgan Chase & Company, and General Electric Co, some of the largest sponsors of these department store credit cards, are now faced with the challenge of collecting from disgruntled customers who have useless credit cards. Department store or private-label cards are considered a higher credit risk due to less stringent qualification requirements, according to industry publications, and typically have a higher charge-off rate than general purpose cards.

Readers, has anyone lost some rewards or benefits from a department store credit card that you want to share your story?

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