The same politicians who have mostly killed free check and debit card rewards programs through government price controls are turning to credit cards – and that means miles, cash back and other rewards are now in jeopardy.
It’s a potential political earthquake, as a recent study found that 84% of all credit cards are reward cards, and 70% of cardholders who earn less than $ 20,000 a year have cards. of reward. Many small businesses also rely on rewards cards, especially cash back cards.
These individuals and small businesses must move quickly to stop the ongoing efforts of Senator Dick Durbin, D-Ill., To gain the support of his colleagues to expand his 2010 price control and shipping regulations. from the network on debit cards to credit cards.
The debit card experience should be taken as a caveat.
Rushed through the Senate without committee review under the Dodd-Frank Act, the Durbin Amendment imposed price caps and network routing mandates on debit card transactions, benefiting larger retailers but disrupting the business models of banks, credit unions and stores selling lower cost items. When banks and credit unions were squeezed, they had to cut spending, which meant cutting free checking accounts to customers with lower balances and ending almost all debit rewards programs.
To garner the support of a handful of Republicans in 2010, Senator Durbin touted his regulations as a boon to retailers and consumers. Here’s what really happened:
- Seventy-seven percent of retailers kept prices the same and 21 percent actually raised prices due to Durbin’s regulation, according to the Richmond Federal Reserve.
- Free verification has gone from 60% of all accounts to just 20%, according to a University of Pennsylvania study.
- The Durbin Amendment cost the average low-income American about $ 160 a year, according to a Boston University study.
- The number of unbanked Americans has increased by about one million, according to the same study.
Durbin considers this a success, as his only real goal was to reduce transaction costs for the larger retailers. And just as debit regulations hurt consumers, imposing Durbin-style price and routing controls on credit cards will mean the end of rewards programs, especially for low-income customers who are less valuable to them. the banks.
Is it worth relieving influential big box retailers of what they claim to be excessive transaction fees? If the costs are really so high, why have cash only stores almost completely disappeared?
Electronic payment costs vary, but average around 2%. But the average cost of cash across all retail sectors is 9% in a recent study. Grocery stores are at the low end of the 5 percent spot cost range, while bars and restaurants are at the top of the 15 percent spot cost range. The study defined the cost of cash as running cash drawers, interacting with their banks with deposits, reconciling cash flows, and “shrinking” money lost in the event of a loss. , theft and fraud.
In addition to the savings in transaction costs through the use of cards, retail merchants know that most of their customers prefer to use cards and spend more per transaction when using cards than when using cash. ‘cash.
Of course, retailers want to cut costs and they are already negotiating with payment networks. However, the fact that the government intervenes with price controls and routing rules would enrich them by disrupting a well-functioning market and harming consumers.
Before subscribing to Durbin’s latest bad idea, senators should consider how they will defend their vote with voters who, as a result, will stop earning miles, cash back and other rewards with every purchase.
Phil Kerpen is the President of American Commitment and the author of Democracy denied. Kerpen can be contacted at [email protected]