Is Congress Going to Kill Credit Card Rewards?

Legislation known as the Credit Card Competition Act, first introduced in Congress in 2022, is described by its sponsors as encouraging “competition in electronic credit transactions.” But if lawmakers end up passing the measure, opponents say it could also torpedo the rich rewards and perks that cardholders have enjoyed for years.

“Will consumers lose? Probably,” wrote Brian Riley, director of the credit advisory service at Mercator Advisory Group, in an August 2022 post to the Mercator blog. “Their reward programs will dry up, just as they did with debit cards.”

thrawn,

I like that politicians always claim the savings will be passed on to customers. Companies are benevolent and will definitely not pocket the extra 1% they’d save.

Anticorp,

Exactly this. I’m pretty sure the CC companies themselves are behind this legislation. “We wanted to give you perks for using our card, but it’s illegal now. Oh BTW, completely unrelated, your interest rate and annual fees will remain the same. If you don’t like it, then just pay everything off before the annual fee hits again next month. Ta-ta!”

halcyondays,

Like a lot of legislation, this reads like someone without much expertise in the field wrote it.

The number of parties taking a cut of processing fees is one major issue. A lot of point of sale providers are payment facilitators (payfacs) or independent sales organizations (ISOs), which means they’re selling the merchant on processing with a third party and taking a cut. For example if you buy Toast POS, you’re forced into processing with them, which is actually going through 5/3rd bank, but Toast keeps between 0.5 - 1.0% just because they have you locked in.

There are also all kinds of murky security fees. If your platform tokenizes card numbers (swaps the encrypted credit card number out for a single use token, which means if the traffic was MITMed and decrypted it still wouldn’t contain full card info), there’s a fee for that, typically 1 cent per transaction or so. On top of the ~5 cents per transaction network fees (which are separate from interchange fees). Card not present transactions (online / phone orders) have higher fees. Swipes have higher fees than emv/nfc. Has anyone ever looked into how strongly all those upcharges tie to the cost of increased fraud with those methods? Knowing credit card companies I wouldn’t be surprised if they slip in some extra profit here, it’s certainly not transparent or regulated. And for that matter - how much are processors saving on fraud now that emv puts liability for chargebacks onto the merchant? Processing rates have only increased over the years, but that was a pretty major shift in the favor of the banks.

Some point of sale providers have quietly been rolling out what they call “cash discounting”, which means that paying with cash is cheaper, with the consumer paying the card fees on top of that if they pay by card. And a lot of payfacs use this as an excuse to sell absurd processing rates, I’ve seen over 4% + 15 cents per transaction a few times (industry standard for small restaurants/retail is 2.6% + 10c per); since the merchant isn’t the one paying it, they’re less likely to argue about that.

Toast decided recently to start adding a surcharge to every order on the platform that goes directly into their pocket - that’s on top of monthly subscriptions from the merchant and their cut of processing fees. Why not legislate something as blatantly predatory as that?

In any case - fintech is far more convoluted than it needs to be, something as simple as busting the entire idea of payfacs, forcing all platforms to allow a choice of processors, would go a long way in encouraging competition. A bigger overhaul would be to start restricting who can handle that data and how many hops are allowed - hypothetically right now your card can go from merchant to point of sale to tokenization provider to gateway to processor to bank to card brand, and they all take a cut.

sugar_in_your_tea,

I would use cash today if I didn’t need to deal with stupid amounts of change. I don’t carry a coin purse and I don’t want to, and I prefer my wallet to be thin instead of packed with bills. Some solutions (in the US):

  • abolish the penny - ideally we’d abolish the nickel and dime as well and round to the nearest $0.25
  • include sales tax in the price on the shelf - buying a $0.99 item ends up being $1.08, which means I get a handful of coins with nearly every purchase; if it was included, stores would probably round and eliminate most of my change
  • have better security on debit cards - I don’t use mine because of horror stories around fraud; I’m thinking banks would generate a special token for each vendor (i.e. a separate card number) and the user would set a limit on it; if the UX was decent, it could go a long way; if there’s a breach, attackers would only be able to spend up to that limit, and only at that vendor

I’m sure there are a million ways to improve things, yet we do none of them. But until cash stops being a nuisance, I’m not going to use it.

lemming007,

The $0.99 prices is the stupidest thing in America, I haven’t seen it in any other country. Also, agreed on including sales tax and rounding to .25. Would actually make using cash tolerable.

OldFartPhil,

This really has very little to do with consumers and everything to do with a tug of war between processors, banks and businesses. I’m skeptical that any potential savings to businesses is going to be passed on to consumers.

From a personal perspective, I’ll miss rewards cards if they go away. I make all my purchases with plastic and pay off the balances in full every month. In 2022, I received $711 in cash back.

funchords,
@funchords@lemmy.sdf.org avatar

This really has very little to do with consumers and everything to do with a tug of war between processors, banks and businesses.

Sounds right. It’s not like there is some lobby of consumers out there writing legislation like this. And the last ones to ever write legislation are legislators.

Serinus,

We could also just stop using predatory cards so much. The fact that users get a kickback is part of the design. It doesn’t benefit us in the end.

Credit card companies are basically a 2% leech on the entire economy.

socsa,

The biggest concern for me is eg, that “zero foreign transaction fees” is considered a perk. I can live without cash back probably, but losing the forex perks would be a nightmare, and would cost me easily a thousand dollars per year.

Anticorp,

and would cost me easily a thousand dollars per year

That’s probably the goal.

Anticorp,

I can’t think of even ONE instance where a change to policies, legislation, manufacturing, shipping, or anything else that resulted in lower costs has ever been passed on to consumers outside of co-ops like Costco and REI.

xkforce,

The money for rewards comes from somewhere. And those rewards are maybe a couple percent of what you buy. A lack of competition can hurt people a hell of a lot more than that even if rewards werent funded through transaction fees.

lasagna,

You just have to look at the EU. CC rewards aren’t really much of a thing here. Because as I understand it, those companies are capped on how much they can charge vendors. In return, customers get cheaper products upfront rather than in some roundabout dodgy way.

BaconIsAVeg,

But time and time again, vendors have shown that when their costs decrease, they definately don’t pass those savings on to the consumer. Prices for a lot of goods only go up, never down.

lasagna,

Are we talking about both big and small vendors here? I find it difficult to treat them the same. If we are only talking about the big ones then I wanna say that I agree but to a limited degree. Because their overall profits are still looked at, even if not much is done about it.

And especially now that we have a food crisis, an extra 1% or 2% (relative to revenue) could make them look really bad when their profits are already very high. Granted, my mind wandered off here and went into supermarkets. Personally don’t care too much about clothing, etc. prices as that industry is another whole can of worms.

MajorHavoc,

Dude whose job it is to rip off consumers says “consumers will lose”.

I’m sold. Pass that law. If the CC company bozos are against it, it’s probably a good thing.

This reads as “if our prices have to be competitive, we’re cancelling our bullshit programs where you could game back some of the money we took from you.”

Yeah. We know you won’t be able to afford that, because we will still have all of that money. That’s the point.

Edit: “Let them eat cake.”

JoYo,
@JoYo@lemmy.ml avatar

I’ll even pay extra if they stop selling my info.

Squizzy,

Why pay extra when you could legislate

JoYo,
@JoYo@lemmy.ml avatar

legislation is paying extra.

Squizzy,

How so?

WetBeardHairs,

Actually, that’s a fair point. Credit card merchant fees are a significant portion of transactions. VISA gets rich because they charge 1-10% on every single transaction. Holy crap.

My family churns our credit cards to get the absolute maximum rewards possible. Each year, out of probably $75k in purchases on credit cards, we receive about $3k in cash back. That’s about 5%. Sure, we’re thankful for being able to get some free nights in a hotel and such, but if we weren’t paying those fees in the first place, we’d save quite a bit more.

But of course, cost savings are not transferred to consumers these days. Retailers will still charge the same, they’ll just give VISA and the big banks less profits.

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