Credit Card Rewards–Are Yours at Risk?
Credit Card Regulation–More to Come?
ABC News reported yesterday that, this week, the U.S. Congress may debate Senate proposals to limit the amount that Visa and MasterCard can charge merchants every time credit cards that carry their branding are swiped. The new credit card regulation would empower the Federal Reserve to ensure that such fees (known as “swipe” or “interchange” fees) are fair and reasonable.
At the moment, the fees–which vary considerably depending on what’s being bought, how, and where–average about two percent of the value of each transaction. Those two percents add up, and in 2008 amounted to roughly $48 billion.
And that’s close to $150 for every man, woman, and child in the country. Although merchants complain about the impact of this on their margins, it seems likely that much of the burden is passed on to consumers–rich and poor, cardholders, and the unbanked–in higher prices.
Credit Card Companies Losing Battle?
Unsurprisingly, credit card companies, which are already being squeezed by high “charge-offs” (industry jargon for the writing off of bad debts) and the provisions of last year’s Credit CARD Act, have lobbied hard to resist Congress’s proposal. But–so far at least–they seem to be losing the battle.
The problem is that most of the money levied by Visa and MasterCard isn’t retained by those organizations (they only keep five or six cents per transaction) but is passed on (“kicked back”, according to critics) to their client credit card companies, which use it to cover costs, boost profits, and fund credit card rewards programs.
Credit Card Rewards Programs at Risk?
So will the proposal that legislators are currently considering put credit card rewards programs at risk? Well, nobody is yet saying for sure, but it’s hard to see how they can continue to be so generous unless credit card companies find other ways to raise revenue. And their options for doing that are constrained by recent regulation that prevents them from levying unreasonable fees and hiking existing credit card rates without cause.
That may explain why IndexCreditCards.com reported May 31 that: “One year after sweeping new credit card reform rules were signed into law, credit card rates for new consumer accounts hit their highest level since IndexCreditCards.com began tracking them in late 2005.”
Credit Card Rewards Programs and You
It’s too early to tell whether your credit card companies will be forced to cut back on your rewards programs. But, if you’re selecting a new card, you might want to bear in mind that legislators are currently thinking of regulating swipe fees levied only by Visa and MasterCard. That means that other issuers that don’t use those transaction processing networks are unlikely to be affected.
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