Credit Card Companies Deceiving Customers, Fed Report Finds
- By [ Austen Jensen ]
- Washington, DC
- 01/22/2023
Credit card companies often claim their exorbitant fees paid by merchants are necessary to support rewards programs but these programs are inherently problematic. As today’s report shows, "Credit-card rewards are often framed as a 'reverse Robin Hood' mechanism in which the poor subsidize the rich," wrote the researchers.
The report found cardholders with lower credit scores overspend to try to earn more points and incur higher interest payments stemming from outstanding balances. And economists estimate that about $15.1 billion is transferred annually from poorer, less educated communities to more affluent areas with higher levels of education and income.
“The absence of competition in the payment’s ecosystem allows the largest banks and credit card companies to get away with highway robbery when it comes to swipe fees. In 2021, U.S. retailers paid an astounding $138 billion to accept electronic payments, a cost much higher than our global peers. And today’s findings from the Federal Reserve and International Monetary Fund show that these fees aren’t benefiting customers in the way Wall Street wants the public to believe. Their policies are having a negative impact especially on minority and poor communities. These injurious swipe fees don’t benefit anyone except the largest banks and credit card companies,” said Austen Jensen, executive vice president, government affairs at the Retail Industry Leaders Association.
The report, Who Pays For Your Rewards? Redistribution in the Credit Card Market is further evidence that Congress needs to act and pass legislation that brings meaningful competition into the credit market. Retailers stand ready to work with Congress to make this happen.
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Competition
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Payments
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Public Policy
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Supporting Free Markets and Fostering Innovation
