Several years ago, the Citi Dividend Platinum Select MasterCard was a great credit card to use for the spending you would have done anyway. At that time, you could earn 5% cash back on all your purchases. For a time, I was able to charge my rent payments to the credit card. That’s a dangerous proposition for some people, but if you pay the bill in full every month, all you see are benefits.

After some time earning some of the best cash back rewards available, Citi began converting many of the Dividend Platinum Select MasterCards to Dividend World MasterCards. “World” may mean nothing more that the cards have “PayPass” enabled. PayPass is a technology that includes an embedded radio transmitter (RFID) inside the plastic, so rather than scanning the strip — or even using a manual scanner to imprint the raised card number on a slip through carbon paper — users can magically wave their card in front of a reader that activates the chip and receives the card information through an encrypted radio signal.

From MasterCard’s point of view, they can charge merchants a higher interchange fee for accepting these cards. Citi, on the other hand, was paying out too much money in cash back rewards, so they eventually reduced the benefit from 5% cash back to 2% on select purchases and 1% on all other purchases.

The Great Rebate Shrink hasn’t ended. While cardholders of the Dividend World MasterCard like myself will continue to earn 1% on all purchases, 2% cash back or more will be earned from different categories every three months and will require enrollment every time the categories change.

Though you can currently request your rebate check at any time when you have accumulated at least $50 in cash back, starting July 1, 2010, checks will only be sent in increments of $50, increasing the chances you will eventually leave some cash unclaimed.

For the World MasterCard, the first categories earning extra cash back will earn 5%, undoubtedly higher than usual to encourage people to be excited about the program at first. The qualifying categories for this extra cash back are restaurants, car rentals, and hotels.

It may be worthwhile to use this card specifically for the varying categories earning the higher rate each quarter, but when the novelty wears off it may be easy to forget to enroll.

I received this bit of bad news in the mail today, but I also received some possible good news. I’ll share that notification tomorrow.

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Every Tuesday, Smithee presents an article about his own experiences with credit cards and observations about the credit card industry.

A few weeks ago I was the victim of debit card fraud. In my case the system worked very well. The bank’s automatic mechanisms noticed a few big-ticket items being purchased in Chicago, which is quite far from where I live. The first one went through, the second one was held up and I started getting calls from the bank’s fraud detection department.

So, that card number had to be canceled and I got a replacement with a new number within a few days. The money was also refunded, but the surprise came when I noticed the new card had that little “PayPass” logo on it. You know, the thing that’s supposed to let you tap the card against a reader instead of sliding it through the reader? (Think of the time saved!) The old one didn’t have PayPass on it, and I was ambivalent about the technology, having read reports about how it’s not all that much faster.

The bigger problem is that it uses RFID, which is not exactly ready for prime time. To make a long story short, people can easily, and cheaply, extract the data from your card without you knowing. Here’s a video with a demonstration:

Interesting side note: Mythbusters was going to do a show about this, before the idea was quashed.

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