Just as debit card reforms harmed consumers, so too will credit card reforms. The biggest casualty of this new legislation will be co-branded credit cards, more commonly known as rewards credit cards. While first created by airlines, reward cards are now offered by hotel chains, cell phone companies, coffee chains, tech companies, and even grocery stores. To create a rewards card, a company will typically rely on a single network processor, an agreement that would be outlawed if the CCCA becomes law by allowing merchants to choose which network to process their payments. Such prohibitions will make it almost impossible for rewards cards to be offered to consumers, and it will mean higher annual fees for people who want to keep their credit cards.
The loss of reward credit cards will result in a significant decline in consumer welfare. According to the Electronic Payments Coalition (EPC), “87% of cardholders owned a rewards credit card,” and 96 percent of rewards cardholders consider their card-based rewards programs “very or somewhat valuable.” These statistics highlight the reality that altering how rewards cards operate would deny consumers access to a product with which they are overwhelmingly satisfied.
Additionally, eliminating rewards credit cards would also harm merchants, the very people the CCCA was intended to help. According to EPC, “relative to a non-rewards consumer credit card, a rewards card is associated with an average transaction size that is 25–60% higher.” For merchants, increased transaction sizes mean greater revenue and profitability that, in turn, can be reinvested into their businesses.
There is another serious drawback to this legislative proposal, because the proposal could divert traffic to lower-cost payment networks. However, these networks are low cost because they do not have the same cybersecurity protections that the major credit card networks have. This means that consumers, merchants, and banks are more likely to be exposed to security breaches and fraud.
The feds are coming for your credit card rewards
I'm surprised they have not proposed taxing cash back rewards as income.....Yet.
The loss of reward credit cards will result in a significant decline in consumer welfare. According to the Electronic Payments Coalition (EPC), “87% of cardholders owned a rewards credit card,” and 96 percent of rewards cardholders consider their card-based rewards programs “very or somewhat valuable.” These statistics highlight the reality that altering how rewards cards operate would deny consumers access to a product with which they are overwhelmingly satisfied.
Additionally, eliminating rewards credit cards would also harm merchants, the very people the CCCA was intended to help. According to EPC, “relative to a non-rewards consumer credit card, a rewards card is associated with an average transaction size that is 25–60% higher.” For merchants, increased transaction sizes mean greater revenue and profitability that, in turn, can be reinvested into their businesses.
There is another serious drawback to this legislative proposal, because the proposal could divert traffic to lower-cost payment networks. However, these networks are low cost because they do not have the same cybersecurity protections that the major credit card networks have. This means that consumers, merchants, and banks are more likely to be exposed to security breaches and fraud.
The feds are coming for your credit card rewards
I'm surprised they have not proposed taxing cash back rewards as income.....Yet.
