Your Credit Card Rewards May Soon Be Taken From You
January 20, 2024 9:31am
Do you enjoy getting reward points, airline miles, statement credits, or cash back when you use a credit card to make purchases? I do. But there is an effort in Congress to eliminate credit card reward programs as we know it. Senate Bill 1838, the Credit Card Competition Act, is sponsored by Senator Dick Durban (D-IL). Co-sponsors are Peter Welch (D-VT), Roger Marshall (R-KS), and JD Vance (R-OH).
When someone uses a credit card to make a $100 purchase, it costs the consumer $100. But the merchant doesn't get the full $100. The merchant receives $96 - $99. The other 1% - 4% of the transaction retained by the credit card processor is the "merchant discount rate." They are informally referred to as "swipe fees." Some of that retained money from such interchange fees pays for the secure technology infrastructure that processes credit card transactions along with certain fraud protections. But almost half of that money is used to fund credit card reward programs. 82% of American adults have at least one credit card. 84% of them have one with rewards. So credit card reward programs are obviously quite popular.
But the Credit Card Competition Act would result in the elimination or serious reduction in credit card rewards. The proposed legislation in Congress would require credit card issuing financial institutions with assets above $100 billion to allow transactions over at least two credit card networks, with at least one not being the Visa or Mastercard networks. Curiously, the bill would not apply to American Express or Discover.
Senator Durbin argues that by forcing network competition, rates will go down, and consumers will save money. While that may seem like a logical outcome to expect, history suggests otherwise. In 2010, it was Senator Durbin's amendment to the Dodd-Frank Act that forced lower swipe fees for debit card transactions. He argued that it was low income people who used debit cards the most, and that they'd miraculously have more money if swipe fees were lowered. But what actually happened was the elimination of reward programs for debit cards and increased fees on checking accounts. There's no such thing as a free lunch, so something had to offset the losses imposed by the government-mandated reduction in swipe fees. In the end, the low-income people that Durbin claimed to care so much about were financially worse off after his do-gooder legislation meddled in the market. He now wants to do the same thing to credit cards.
But the harm that would come from passage of the Credit Card Competition Act goes far beyond those of us who enjoy getting rewards on our credit card purchases. There would be other serious harm to the economy. Yet this threat has received very little attention in the media. So on today's radio show, I discussed the bill and its harmful effects with Nick Simpson, the Managing Director of Communications and Public Affairs for the Electronic Payments Coalition. That interview is now archived online as a podcast at www.TheMikeBatesShow.com/podcasts/240120
More information is also available at www.ElectronicPaymentsCoalition.org, www.ProtectUSTourism.com, and www.HandsOffMyRewards.com