US Senate bill proposing to ruin your credit card rewards

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Credit card rewards offer one of the greatest opportunities for people to enjoy amazing things they may never have been able to experience with money. Points can also be a great democratizing equalizer in life, even a lifeline.

A person who earns $50,000 a year, but earns credit card rewards efficiently, can occasionally enjoy a first-class flight worth $10,000, or a five-star hotel in the shelter looks, using reward points smartly. Or maybe – just use them to buy a computer their family needs for school. On points, no problem!

These rewards are largely funded by the approximately 2% fee that card issuers receive for each transaction. In today’s free and competitive US credit card market, nearly all of these fees are reinvested directly into rewards and benefits for cardholders, like you or me.

A bill makes its way through the US Senate, largely using false narratives and faulty data, hopes to change that — pretty much so big box stores can save pennies when processing your transactions. And no, those pennies won’t bring prices down for you anytime soon.

The last time a similar bill was passed, only 1% of US merchants lowered their prices in any way. When in history did this old trick work? Here’s everything you need to know about the proposal and how it would do consumers far more harm than good.

Confusing cost of living issues

Why is my cheese more expensive? Why is Netflix raising prices again and no longer winking and nodding about sharing passwords?

With many elements of life reaching into uncharted territory and the prices that come with it, people are eager to find answers and reasons. People are tired of these “unprecedented” times and would really like to go back to things that came before.

Cost-of-living concerns are not something to be taken lightly, but this proposal making its way through the US Senate is perhaps the most illogical and arguably stupidest way to deal. It certainly won’t help people, but may help some greedy companies.

Basically, big box merchants convinced politically motivated senators to propose a new bill that would remove credit card rewards, potentially forcibly reducing interchange fees – aka merchant fees, but not consumers pay — when you pay with a credit card.

It’s always been a cost of doing business, but merchants want the benefits of accepting cards – meaning people spending more – without the fees. It’s called having your cake and eating it too.

Without fees to fund rewards or create benefits, many key credit card benefits, like rental car collision coverage or trip delay protection, could be at risk.

Paying with a credit card on a laptop

The bill would require top rewards cards to partner with non-competitive card networks like Pulse or NYCE in addition to Visa, Mastercard, Amex or Discover, so merchants can benefit from lower fees on the transaction.

After paying the same price, of course.

Interchange fees help fund credit card rewards and that’s an example of what truly free competition does. If a top card issuer earns 2%, many reinvest that 2% directly back into the customer with points or cash back because the market is so competitive. Some even invest more than they earn in the transaction to build loyalty.

Going further, Amex, Mastercard and Visa are spending countless billions learning how to manage risk, so that as many transactions as possible can be approved, rather than declined. This learning is due to incredible data and investments, which would be at risk. A biased look at many of these topics can be found here.

Senators Durbin and Marshall are attacking the credit card industry because it is an easy target, even if it is not the right one. That’s not so surprising, given that some of Durbin and Marshall’s biggest donors and voters are big-box stores that really hate paying credit card fees, but find credit card acceptance vital. .

And fun fact, Discover is an Illinois constituent of Durbin and would be exempt from the newly proposed bill. Ha! Uncompetitive networks that have never invested in meaningful rewards or customer benefits want a bite out of the apple, and rather than compete in a free market, they want someone to change the rules for them.

What’s wrong with fees and rewards?

From the start, know this thing, if nothing else. Interchange fees haven’t actually changed significantly in about a decade, unlike some other things! Businesses can’t really say that their economy has changed because of card processing. On the contrary, things like Stripe or Square have reduced processing costs for merchants.

The last time interchange fees were forcibly changed by Durbin, only 1% of traders did not make any price adjustments. Basically, with this proposal, based on data from Durbin’s latest economic bill, 99 out of 100 stores you visit would still charge you the same price or more, even if they made more money.

What has changed – and created a sound phrase that these senators confuse – is that banks and networks like Visa, Amex, Mastercard and Discover are making more money than ever from exchanges, and it’s true. , but not in the way it was framed.

The reason this is true is that people spend more money on credit cards than on debit cards, thanks to purchase protections and other benefits that interchange fees provide. Not because interchange rates have changed dramatically.

If we say that American consumers historically spent $100 per year and the card issuers and networks received 2%, but they now spend $200 per year and the card issuers and networks still receive 2%, c is just a higher raw number. That’s what happened.

The raw numbers that credit card issuers collect on interchange fees are simply higher because people are spending more on credit cards to earn rewards and take advantage of those protections and benefits that other products don’t offer. not. Ready for the kick?

It’s especially amusing because the latest Durbin-sponsored government economic experiment ruined debit card rewards and forced countless people out of the banking system. A George Mason University study estimated that the last time Durban intervened in the free market, around 1 million people lost access to banking services.

contactless bank card

Credit Card Competition Act: A bunch of nothing

Durbin and Marshall dubbed their (very expensive) and ill-fated bill the “Credit Card Competition Act.” I can’t help but LOL at the notion.

They want to create competition by taking a free market system that already exists, and already provides every chance for Pulse and others to compete in the space and force their way to the table at the expense of consumers who enjoy better consumer benefits and protections than ever before. It’s not competition. It’s a strong arm tactic.

In my view, this is not about helping consumers pay the cost of living. It’s about supporting businesses that refuse to compete and invest, at the expense of truly competitive credit card and rewards products that benefit the public.

Norman D. Briggs