Washington’s Planned Theft of Credit Card Benefits

Credit card companies charge merchants fees for processing credit card transactions, which can lead to additional costs for consumers in the form of surcharges or higher prices. For example, during a vacation, the author and their family used accumulated miles from their Alaska Airlines credit card to purchase airline tickets. While dining out, they noticed that some restaurants added surcharges for credit card payments to cover these fees. The author's brother-in-law also mentioned receiving cashback rewards from his credit card, which had paid for a nice dinner. However, these rewards come at a cost, as merchants often pass on the premium fees to the sellers. Popular credit card brands like Visa and MasterCard account for the majority of general-purpose credit cards, giving them significant leverage over stores and restaurants. Smaller businesses, like food trucks, may be more willing to pay these fees since they don't have to carry cash or operate cash registers. During the COVID-19 pandemic, contactless payments, such as credit at the pump, have become more popular due to health concerns. Additionally, retailer-specific credit cards, like Amazon or Eddie Bauer, offer benefits like points or discounts to incentivize use. Overall, while credit card rewards can be beneficial, it's essential to be aware of the underlying costs and potential surcharges.

The use of rewards credit cards, such as Buy Now Pay Later offers and those with premium rewards like cash back, bonus points, or air miles, has become increasingly popular among consumers since 2015. These offers often come with interest-free credit periods and incentives to apply for new credit cards, but they also come with the risk of high interest rates and fees once the suspension periods end. The average purchase volume for rewards cards has grown significantly during this period, with many customers switching cards for better rewards. Common premium offers include cash back, merchant bonuses, and travel rewards. Late payments on these cards can result in high default interest rates, and late fees and interchange fees make up a significant portion of banks' profitability. The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, aimed to regulate the financial industry but had unintended consequences, including limiting fees for debit card swipes through the Durbin Amendment. Despite its intentions, the implementation of Dodd-Frank was challenging, and some parts were rolled back by then-President Trump in 2018. Overall, consumers should be aware of the potential risks and benefits of rewards credit cards and carefully consider their financial situation before applying.

The Credit Card Competition Act of 2023, introduced by Senator Dick Durban, aims to increase competition in the credit card industry to protect consumers. The idea originated from the Dodd-Frank Act but faced little traction in 2022. The bill, which details and processes will be determined by the Treasury upon passing, intends to allow merchants or consumers to choose from a minimum of two banks to process credit card swipes, assuming competition would lower prices and merchants would pass savings onto customers. However, the effectiveness of this approach is uncertain, as previous studies on interchange fees under Dodd-Frank showed no clear benefits to consumers and potential increases in checking account fees and merchant prices. The credit card market is vast, with over 56 billion transactions in 2022 and an average interest cost of 19%, contributing to a total credit card debt of $1.08 trillion in Q3, 2023. The bill's support from various merchant groups suggests more than just a desire to lower prices for consumers. Ultimately, the impact of the Credit Card Competition Act on consumers remains to be seen.

The proposal to regulate the credit card market by a government official, as discussed, could result in reduced rewards for cardholders while potentially increasing payments for retailers. However, the proposal lacks a clear understanding of the market mechanics and ignores past failures of similar programs. Furthermore, the government's lack of insight into consumer behavior and the realities of the market makes the proposal seemingly unrealistic. The continued inflation and rising credit costs on declining real wages add to the concerns. The Democratic Senate's palliatives, while earnest, do not address the root issues. Without a clear understanding of the market and its complexities, the proposal risks being another misguided attempt to regulate a significant market. It's crucial to approach such matters with a comprehensive understanding of the market and its implications.