I’m quite happy to see The Points Guy turn political and ramp up lobbying efforts to defeat a Congressional bill that would undermine credit card rewards. We all need to join the effort to push back against a poorly intentioned and highly counterproductive bill that will take money from all credit card consumers and redistribute wealth to retailers rather than help the poor.
The Points Guys Ads At Washington National Airport
Walk through Washington National (DCA) and you may notice a bright yellow sign from The Points Guy:
The Credit Card Competition Act would undermine consumer credit card rewards. Capping fees through forced competition would make it impossible to continue to offer the current portfolio of benefits on many card products. Perversely, it would encourage loyalty programs to devalue in order to continue offering earnings at today’s rates. We see that when we look at Europe or Australia.
But while that may be my primary concern, the fundamental problem with the act is that it would represent the federal government forcing payment networks to provide their services to retailers at a lower price. That sort of meddling is unwelcome and ends up hurting the very people it intends to help.
Why this bill and why now? We are entering an election year and both Republicans and Democrats are attempting to maximize support from large retailers, who support this measure because it represents a wealth transfer to them from credit card processors. But these retailers enter into those relationships voluntarily and the ability to accept credit cards provides protection against fraud and encourages consumers to spend more. No one is forcing retailers to accept credit cards.
Lobbying efforts in favor of the bill are ramping up and The New York Times ran an ignorant and misleading video today advocating for this bill. The NYT, and its shills, essentially argue that store owners raise prices to compensate for the credit card interchange (swipe) fees they must pay, meaning everyone pays more. But the poor get hurt because only those who have fancy credit cards are getting rewards.
That’s bunk. As noted by View From The Wing, who has truly been a thought leader in exposing how counterproductive this bill would be, the justification for the bill rests on two false premises:
- Credit cards are more expensive for merchants to accept than cash
- If merchants were not paying higher prices for credit cards, prices to the consumer would fall
On the contrary, cash is more expensive to handle due to theft, fraud, and the cost to insure it. Those retailers who offer cash discounts are likely doing so for tax avoidance purposes.
More importantly, in places where interchange limits have been limited, consumer prices have not fallen. Instead, retailers just pocket the savings and consumers end up losing out, both poor and wealthy (see Australia and Europe). Indeed, in Australia credit card fees rose after interchange was limited, thereby reducing access to credit cards precisely for those least able to afford them.
There is not a problem here that requires a solution. Members of Congress need to keep their hands off our credit card rewards and recognize the system, in its current form, works.
The Points Guy may reduce the message when it simply says Your Vacation Is At Risk, but it is quite correct. Kudos for the ad, which I hope shows up in more airports than DCA.
CONCLUSION
The Credit Card Competition Act is horrible for consumers, full stop. It will hurt those across all income ranges that use rewards cards and will not lead to price breaks for the poor. It is foolishness to suggest otherwise.
Let’s not forget that Senator Dick Durban (D – Illinois) destroyed debit card rewards with similar legislation in 2010 and now seeks to do the same for credit card rewards. Consumers were hurt, not helped, on the basis of his 2010 bill that was approved by Congress and signed into law.
Please contact your representatives in Washington, DC and tell them to reject this bill.
It is good to see TPG use some of its influence to remind folks that The Credit Card Competition Act would hurt the very people it intends to help.
“If merchants were not paying higher prices for credit cards, prices to the consumer would fall”
This is true, not false as claimed in the article.
Arco charges less for gasoline purchased with a debit card than a credit card.
Reward cards cost more for the merchant to accept because the fees are so high that they cover the entire reward. The banks and credit card companies require merchants to accept all Visa or Mastercard and not charge more or refuse reward cards. Since the rewards are entirely paid for by the merchant, that’s why the rewards have gone up from 0.25% to 2%. Someday, what if it is 10%. Will the merchants eat the cost or raise prices?
No. It’s not true. As someone with UK, and Australian credit cards I’m in a pretty good position to comment on what life is like after interchange fees are capped and as stated in the article, prices do not fall. Not even a little bit.
You use the example of Arco offering lower prices for payments made via debit card, but as every other retailer/business in the country chooses not to follow suit, it (and the other gas stations that do this) are outliers not examples of how things would work with capped interchange fees.
If a retailer doesn’t offer a discount now when a customer uses a method of payment that charges a low interchange fee, what makes you think that they’ll reduce their prices when interchange fees are capped at a lower level than they’re at now?
In New York State, where it is now legal for retailers to add credit card surcharges, I frequently see many charging in excess of 3%, which I know is more than it costs them to process the payment. Rather, it is just the retailers taking advantage of the opportunity to add an additional fee and create a new revenue source. I have no doubt that if interchange were capped, consumers would not see any discounts from retailers.
And let’s be honest, the cash “discounts” retailers offer have far more to do with tax avoidance than passing on the savings from them not incurring swipe fees.
Taiwan combats tax avoidance. All receipts have a number. Every 2 months, there’s a receipt lottery which makes people want a receipt.
Rewards, like cash back or miles, should be paid by someone else rather than the merchant, who is forced to take reward cards if they accept Visa, Mastercard or Amex.
TPG is just helping themselves here.
As to cash costing more than credit cards, that is 100% untrue. It’s highly unfortunate that Gary keeps propagating this lie but as a business owner I can assure you that the $30,000+ I pay in credit card fees is more than I would pay for cash.
Nonetheless I agree that this is bad legislation.
I hope everyone who reads these blogs realizes that in the Rewards game there are at least 5 vested parties with differing interests: you, the bank, the card network, the merchant, and the blogger. And the blogger, the bank, and thr card network are the only clear winners in this game. They all want it to continue as it is. Everyone else, ie merchants and you, need to dig into data to make and informed decision.
NYT actually made a fairly compelling argument that consumers at all income levels pay more in swipe fees than they gain in rewards. And while the gamers among us may take joy from knowledge that were coming out further ahead, I doubt it.
Then the question comes, ok, if swipe fees were capped what would happen to consumer prices paid at merchants? Data also suggests that merchants wouldn’t reduce prices so consumers would pay the same. But then you have to consider that you as a consumer have paid an increment more to the merchant and less to the bank, the card issuer, and the blogger. I’m ok with the latter scenario.
And finally, it’s worth considering that not all merchants are the same in swipe fees paid. Swipe fees are typically higher for smaller merchants. This favors bigger businesses in cost management. So, capping swipe fees will almost certainly allow smaller businesses to more effectively manage costs. Generally this would be good for maintaining healthy market systems in the US.
So yeah, even though it will reduce my points earnings. And definitely all those juicy sign up bonuses, I’m for capping swipe fees. Prices I pay don’t need to be fall for this to be worth it. Allowing smaller businesses more bottom line power to support a more competitive market will, over time, benefit me the consumer more.
And don’t buy all that baloney about cash. That’s just a red herring to induce the reader to think about the most facile argument about a bodega which never even existed in their comfortable suburban existence, even before covid. That thawt leader is just another self serving blogger who dog whistles for page views.
“But then you have to consider that you as a consumer have paid an increment more to the merchant and less to the bank, the card issuer, and the blogger. I’m ok with the latter scenario.”
So the consumer only loses rewards, and the merchant possibly comes out ahead, the card issuer and blogger are worse off.
As a consumer there’s just no upside directly into wallets here from the mechanics of this proposed legislation, and downside for many consumers.
no. data suggests the upside is on a longer horizon from greater competition in marketplace by reducing favor placed on big business with current system.
Consumers don’t have the balance sheet for a long horizon like corporates – they see what they gain or lose immediately
@Sam Thank you. Your thoughtful reply with opposing arguments calmly stated as part of a healthy debate.
@Matthew It’s nice to see the conversation over here has been civil. Unfortunately, Gary’s title became clickbait for the QAnon/Newsmax crowd who turned his comment section into the usual fact-free screaming match. 🙁
I wonder if the aggresive response is helpful in the interest of stopping this legislation. My interpretation at the outset was it’s pretty much DOA in the Biden admin, so why give it more debate and awareness than it deserves?
That may be true, but it has gained bipartisan support, which makes me fear it might catch on if it is packaged in the right way.
The argument that prices wouldn’t reduce with capped fees is nonsense. As per previous comments, there are places charging less for debit cards than credit cards, and it wasn’t until the capping of the fees that you could use a credit card in a Dutch supermarket (I remember the shock when I had to use the debit card which I only had with me for emergency withdrawals. I am sure that other parts of continental Europe were similarly less friendly to credit cards than they are now.
Most retailers aren’t operating in markets where they can charge what they want, and competition ensures that prices are kept in check. Where there isn’t much competition is the payment processing market which is dominated by a couple of huge players (namely Visa and MasterCard), whose only real competitors have limited market penetration outside of a few core countries (US/UK for Amex, PRC for Union Pay).
I am not sure whether the bill that’s being proposed is any good, but it’s naïve and/or disingenuous to claim that capping fees hurts consumers.
Furthermore, and perhaps in a way that’s more relevant to readers here, I am convinced that capping fees is actually good for frequent flyers.
When was the last time you saw a waiting list for entering an AF lounge in CDG or one of the IB ones in Madrid, and why is it that whenever I try to redeem miles between Europe and Latin America I can get plenty of availability with Lufthansa, Avianca, TK, AFKL, Iberia, and even Ethiopian, but I am hardly ever offered any seats on DL/UA? Do you really think that it’s a coincidence that’s got nothing to do with the huge bank takeovers of FFPs in the USA?
I recognize that in Germany grocers suddenly accept credit cards (Rewe and Edeka always did, but now Aldi, Penny, and Lidl do too). Do you have some proof that this is directly related to lower interchange fees? (in Holland too).
But as to your latter point, you seem to concede that frequent flyer programs are far more expensive and/or less lucrative in Europe because of the missing credit card element. I realize that restricting points will ease demand, but essentially that makes the program more for the rich…which may not be a bad thing, but is that what you are arguing?
I am not saying that FFPs are less lucrative, I am saying the complete opposite, that in Europe you can earn a meaningful amount of miles from flying, devaluations are far less drastic so you don’t stress over so much about the value of your miles (in fact, flying Blue has recently come up with a bit of a revaluation!) and, perhaps more importantly, you are unlikely to have your priority check in and lounge access privileges diluted by swarms of people who just happen to hold a credit card.
Did you just make the woke Reddit moronic “omg you got PROOF?!” hand-wave?
What’s your PROOF you didn’t write this article because it helps you as opposed to consumers? I don’t want arguments, I don’t want logical conclusions; no, I want PROOF!
There’s some blurb from the EU itself in the paperwork when the measure was adopted which references the preference for local alternatives to the big players due to differences in fees. Not sure whether a full evaluation has been carried out after implementation. https://ec.europa.eu/commission/presscorner/detail/it/MEMO_13_719
useful. thanks for sharing.
I hear you on the award availability, but post GFC and COVID with the banks propping up the airlines via capitalizing the mileage programs, what about the risk of an airline or two becoming unviable during another downturn as it deals with a wind down in the economic value of the loyalty program via clumsy legislation?
In other words, has the bank/airline loyalty ship sailed, and damaging the current bank/airline regime increases the risk of us losing one of the major airlines…which would have even worse impacts for frequent fliers?
The USA is a huge market, there will always be service to/from/within it. The global airline industry certainly isn’t going to collapse if e.g. AA has to go through chapter 11 restructuring. I don’t know about banks and if they still are too big to fail, but surely the solution to that problem won’t be to throw taxpayer resources at preventing the failure.
The award availability situation is frankly ridiculous. Even in November or February, DL would rather sell you AF flights to S.America for your skypesos than give any J availability on its own metal via its ATL superhub at half-decent rates (the transatlantic joint venture only covers North America, so it’s not even revenue sharing). I don’t have a burning desire to fly via the USA and have to mess about with the customs clearance nonsense, but I find it amazing that they never have any availability for partners and their own FFP only sells their seats for extortionate amounts- so, if you do revenue flying with them, why bother collecting those miles in the first place? Anyone who flies more than a couple of times per year has better options in FFPs that aren’t ridiculously beholden to credit cards.
I have posted something twice but it seems to be swallowed up in an internet black hole. I have copied the text so will post again if it doesn’t appear soon.
Not sure what keyword triggered it, but your message went to spam. I fished it out!
That’s strange, surely the spam filter should be clever enough to realise I have posted a fair few comments before! Thanks for getting it out of the purgatory!
Banks/CC companies wouldn’t just roll over and accept a government cap on their main revenue stream if this somehow passes. They’d greatly increase annual fees or something else to restore that revenue elsewhere. Rewards are far too lucrative for them to reduce or end those programs.
This bill will push the costs from merchants down to consumers and all the while merchants will not reduce their prices as many here have also suggested.
Why are there reward cards? It’s because credit card companies want more credit card use. Why does the reward have to be paid by the merchant? That just encourages bigger rewards because the credit card companies aren’t paying for it. It’s easy to give away other people’s money.
All the bloggers get money from credit card sign-ups or get lots of rewards from high credit card use.
I surely thought this was a Kyle post.
Matthew, I agree with most of what you say. However, the premise that most retailers offering a cash discount to avoid taxes is a bit cynical. Does it happen? Sure but most? Doubtful.
Can’t make comments on his website so I don’t go there anymore (and I don’t have Facebook or Twitter).
It has been mentioned other places, but not here so far: Under the current system interchange is provided by a handful of well-financed companies that have a strong incentive to keep their gravy train operating by providing strong information security, spending money to do so. Introducing competition here may inspire a race to the bottom, where some merchants pick their provider by the lowest fee. Some of the companies providing these services won’t be well-financed, and spending on security may not be a high priority for them. They will probably be low fee. How much increased credit card info theft are we going to see above what we see now?
The barriers to entry are huge, the aim of that sort of legislation isn’t to attract new players to the market but rather to prevent existing ones from abusing their oligopoly. See also the link to the EU document I posted above which said that the capped fees were actually detrimental to smaller players operating solely within a national context as they no longer had the competitive advantage of lower fees vs the oligopolists.
All this legislation would do is make high end travel the exclusive domain of the rich and powerful. Which is maybe why the legislation exists. Too many politicians and elites having to rub elbows with the hoi polloi on their vacations.
Zero evidence that this will help consumers. It will just make sure that only the rich and powerful have access to certain high end travel experiences.
What could go wrong with the government controlling more of our lives?!
You had me at “The New York Times ran an.,,”
Enough said.
Just another attempt for TPG to find more Coke & Co#k.
Why is it that no one can provide non-political evidence, studies, reports, etc. that cash is actually more expensive or harmful or used for tax fraud for/by businesses? Matthew provided nothing, but opinion. Gary provided nothing but opinion, TPG provided nothing but opinion. Can a single one of the 3 provide factual studies?
Will prices go down if the legislation passes? Probably not for the most part as the business knows you are already willing to pay the higher price. (But that’s an opinion and I have no study to back it up).
Because you cannot easily quantify income that is hidden, under the table, or kept off the books.
Maybe there is a study – I’d love Gary to chime in here – but I have lived long enough and interacted with enough contractors, workers, and others who ask for cash explicitly to “not declare it.” And if you think this isn’t a problem, I really question what world you are in. It’s coming up right now as I redo my house. I don’t play the cash game, by the way, but it strikes me as a major issue in this economy.
Non sequitur. No where did I say or even hint about tax evasion (tax avoidance is actually legal) not being a problem, thank you. I asked for factual studies. If you, Gary, TPG can’t provide facts for all your claims then it’s ok to admit that. I really don’t know which is more expensive, and would prefer actual facts.
As for your attempted dig with the “enough contractors, workers, and others” offering you under the table cash prices, that’s on you and the people you do or attempt to do business with. I know for a fact I’m older than you have owned homes longer than you. I’ve also had contractors ask for a cash, and I simply ask for the same discount via physical check – haven’t had one turn it down and I still get the same 3-5% discount – and the banks can trace the check and file a SAR if it’s unusual.
Besides, I wasn’t even thinking of contractors. I was going by your own writings: “On the contrary, cash is more expensive to handle due to theft, fraud, and the cost to insure it. Those retailers who offer cash discounts are likely doing so for tax avoidance purposes.” By retailers, I was thinking mom&pop retail – coffee, small furniture, etc. Basically non-chain or a couple places, not service. Service industry vs retail industry are different so not sure why you wanted ignore the retail and switch to service all of a sudden.
I’ll answer this from the perspective of someone who prepares taxes for small businesses. Nearly all of my clients can produce accurate records of credit card transactions, but the less sophisticated have no clue when it comes to cash. We end up having to use a best-guess estimate. Why? The record keeping stinks on the seller side (smaller players simply don’t have the know-how to produce accurate accounting; they end up paying me to sift through bank statements to figure it out), and the reporting infrastructure doesn’t exist on the purchaser side. Yes, you’re supposed to file 1099s for cash business transactions greater than $600 in a year, but those who can’t afford accountants either don’t know the requirement or don’t keep accurate records to do it. And there’s no reporting requirement at all for personal payments (I.e. the $100 a month you pay to your lawn guy). Credit/debit payments are different because the processor reports transactions to the IRS and can easily provide a spreadsheet to the business.
In short, I’m not convinced it’s intentional tax avoidance in the US, but yes, the tax gap is real. There have been numerous studies done to quantify it, both due to intentional fraud and incompetence. The only solution is to substantially increase the IRS audit rate for small businesses with a high percentage of cash transactions, but we all know how that’s going to go politically. Nor do I think that’s a good idea given the current sorry state of the IRS (I say that not as a political statement, but the reality of someone who deals with IRS notices all year long).
In this computer-AI age it should not cost so much(3-4%)to use a credit card… The banks are greedy