End of Credit Card Rewards? [The Credit Card Competition Act]

[HighwayStar]

The Credit Card Competition Act aims to force banks to issue cards with a second network option, thereby eliminating the dominance of MasterCard and Visa. In practice this has a good chance of reducing interchange and killing rewards cards the way the Durbin amendment killed rewards for debit cards. 

Not sure if this actually has a chance of being passed, but this is the second year they have tried.

[Scott5114]

Uh...I get rewards on my debit card... It's not a federally-chartered bank, though, so that might be why.

[gonealookin]

Rewards card programs strike me as gimmicky, because there's nothing to guarantee the future value of the rewards.

My Southwest Airlines card (with Chase) gives me 2x points on most hotel purchases (direct with the hotel, not with an agency like Priceline) and also rental cars (again, direct, not through an agency).  At the current rate of 1 Southwest point = $0.015 in Southwest Airlines fare, that's a pretty good 3% rebate.  Nothing stops Southwest from changing the 1 point = $0.015 exchange rate though.  If they were to cut it in half to 1 point = $0.0075 then my 3% rebate becomes 1.5%.  Blah.  Also, to realize the full value I have to use my points on Southwest airfare; other redemption options such as using Southwest points for hotel stays have an exchange rate quite a bit lower than 1 point = $0.015.

Nevada's Congressional representation appears to be leaning against the legislation, because a lot of people use those travel rewards to take trips to Vegas.  I don't have a strong viewpoint either way.  If rewards are drastically reduced or eliminated I'll just take another look at the available credit card options and make a new selection.

[hotdogPi]

I support the bill. Businesses are currently losing about 3% to credit card fees. For a small business, this could easily kill it if it's not doing well to begin with.

The problem with the Durbin amendment for debit is that it set a minimum fee of 21¢, which was an increase for small purchases rather than a decrease. This new bill would not have that problem, as it's not setting the cost itself.

[Rothman]

I support the bill. Businesses are currently losing about 3% to credit card fees. For a small business, this could easily kill it if it's not doing well to begin with.

If it's not doing well, does it deserve to survive?

[Scott5114]

More to the point, a large business has more wherewithal to absorb a 3% loss than a smaller one does, simply because a larger business is going to profit more due to economies of scale. A smaller business may just have to raise their prices by 3% to pass the cost on, which will probably make their prices less competitive. So if the intent is to encourage entrepreneurship by regular people, then reducing dead-weight cost-of-doing-business fees like this one will help with that. On the other hand, if your goal is to consolidate market share to the tie wearers, then leaving it in place is an excellent idea.

There is a reason that little hole in the wall restaurants are often cash only.

[corco]

I like credit card rewards and aggressively try to maximize my use of them and will be sad if they go.

That said I philosophically support getting rid of them- they're a regressive tax of sorts that allow people who are pretty well off to get perks largely made possible by people with worse credit scores and that doesn't seem right.

[jeffandnicole]

I support the bill. Businesses are currently losing about 3% to credit card fees. For a small business, this could easily kill it if it's not doing well to begin with.

No. Businesses incorporate most of the 3% into the price of their goods. They know the approximate amount people will buy with cards and cash. Just like they incorporate every other expense, they're not going to intentionally lose money on lighting, advertising, rent, water, employee salaries, taxes, landscaping, signage, shelving, air conditioning, exterminating, fire inspections, mailings, training, education, bank fees, subscriptions, health insurance, payroll taxes, building and property insurance, legal fees, travel, donations, computer hardware and software, and more.

When businesses charge the customer the 3% separately for using a card, they're just adding on to their bottom line because they can, and an insignificant amount of people switch their payment choice. That expense was already factored in to the product's cost.

[wanderer2575]

Even if the Act is signed into law, what actually happens and when it happens will be vastly different from what the law says.  The banking industry obviously has tremendous influence, not only with bailouts and such but also over operational regulations, with the result that many aspects of U.S. banking (e.g. same-day electronic transfers, availability of deposited funds, loan servicing) are behind those of other countries with respect to customer servicing.  The credit card industry as well, at least to some extent.  I've no doubt any action would be significantly blunted compared to what the law says.

[triplemultiplex]

Spend more money and save!

I see rewards programs as goading people into spending money they don't have on shit they don't need in exchange for "Disney Bucks" that the credit card companies have absolute dominion over.

So I could care less about a few people's airline miles Camel Cash.

[1995hoo]

The key to credit card rewards is knowing which ones actually make sense for you to pursue and which ones are just blindly pursuing "rewards" that won't do you any good. I keep getting e-mail solicitations for the Southwest credit card, but I don't fly Southwest very often—maybe once a year—so it doesn't make sense for me.

[hotdogPi]

Interestingly, I first heard about this bill about a month or two ago via a TV commercial saying to oppose the bill. It felt like something I should support, so I looked at it in detail and decided to support it.

[SP Cook]

- How is this not "politics"?

- Anyway, the basic goal of this bill is to reduce the processing fees businesses pay.  Put simply, if a business takes in $100 in credit card "money" the bank will credit its account with $97 and send the rest to Visa/MC/Etc. 

- The credit card industry has seized upon the "rewards" programs.  Again, simply, the credit card processors, flush with that 3% vig, uses a tiny fraction of it for "rewards" which can be cash back, airline miles, even green stamps like shopping.  That is a side issue and not the point of the bill. 

- Properly managed, "rewards" cards can be a Life Pro Tip.  Pick something you like, say air travel but it can be whatever.  Charge EVERYTHING, let the points pile up and end up with a free trip (or whatever) for money you would have spent anyway.

- This has, of course, nothing to do with "small business" versus "big companies".  The vig (no knitpicking) is more or less the same.  Take in $10,000, the vig is 3%; take in $10M, the vig is 3%.  Whenever anti-business politicians start talking about "small business" and "big companies", you are being deceived.

[jeffandnicole]

Back in the mid 1990s when I worked at Chase in Wilmington, DE, I remember in one of our meetings they mentioned how they had several hundred people with Shell branded Chase cards, even though they didn't have a Shell station anywhere near them to utilize those points earned. Their marketing team did am advertising campaign to customers they noticed weren't using their points to encourage them to switch to another Chase credit card.

[kphoger]

I used to play along with scammers on the phone.  One time, I had the scammer convinced that I had a Disney Diners Club credit card.  Unfortunately, when he then transferred my call up the chain to his scam-boss, that guy was not amused.

[formulanone]

This entire Act seems like, well...an act. It's going to "create competition" but eventually it either 1) can't compete and withers away 2) gets merged due to success.

Whatever, we're going to secretly pay 105-110% of the difference either way.

[HighwayStar]

- How is this not "politics"?

I think so long as the discussion is about the economic and business impacts and how everyone feels about credit card rewards that is not "politics" except in the broadest sense. But that broadest sense would apply to a lot of other topics that are routine, so in my mind at least there is nothing inherently political about the subject.

- This has, of course, nothing to do with "small business" versus "big companies".  The vig (no knitpicking) is more or less the same.  Take in $10,000, the vig is 3%; take in $10M, the vig is 3%.  Whenever anti-business politicians start talking about "small business" and "big companies", you are being deceived.

This. 
When the interchange fee is a % of revenues, it would seem that it does not matter how small or big the business is. I think there is probabally some nuance around larger institutions being able to negotiate for lower % fees but the idea that interchange strongly favors big business seems a bit far fetched.
It is worth noting that many small businesses, and a few large ones don't accept credit cards supposedly to avoid interchange fees. My theory is this is more due to small businesses being run by one or two decision makers who see the fees as a cost and balk at them without fully considering the opportunity costs of alternatives like cash.

And speaking of cash, one issue I find in some of the talk about this is how interchange fees subsidize some customers at the expense of others. I'm not entirely convinced that is what is happening in practice, at least not for everyone. I suspect the higher price, when paid by cash users, is actually partially offsetting the costs of cash, which has many hidden costs to a business. When the higher price is paid by credit card users, it covers interchange instead. It would seem debit card users are the ones most likely to actually subsidize rewards without standing to gain anything.

And speaking of rewards, I like them and would prefer they stay, but I wish there was a more road trip focused credit card on the market. Most "travel" cards are just airlines and some hotels, and are of relatively little use to a road warrior. I'm sure there are some store cards for gas stations that have a few perks, but what I really want is a good integrated card that pays high rewards on gas, hotels, attractions, and automotive gear. Some perks like free services at Sam's Club or Costco and maybe some lounge access would round out such a card nicely. 

[kphoger]

At least when it comes to brick-and-mortar stores, I've seen $10 minimums for credit card purchases more often than outright cash-only policies.

[1995hoo]

HighwayStar, it sounds like what you might benefit from would be either a generic "points" card that lets you transfer the points to other programs (some American Express charge cards sound closest to what you have in mind) or a cash-back card.

[HighwayStar]

HighwayStar, it sounds like what you might benefit from would be either a generic "points" card that lets you transfer the points to other programs (some American Express charge cards sound closest to what you have in mind) or a cash-back card.

I've taken a hybrid approach for the moment. This generates 5% back (in hotel points) on gas and Wyndham Group hotels and 3% cash back on restaurants on a separate card. That covers the main road trip expenses, but I would still be first in line if anyone issues a proper road warrior card. In the past I tended to disregard Amex due to patchy acceptance but it seems like they have become more widely accepted to maybe its time to revisit that assumption.

[gonealookin]

When businesses charge the customer the 3% separately for using a card, they're just adding on to their bottom line because they can, and an insignificant amount of people switch their payment choice. That expense was already factored in to the product's cost.

The 3% additional charge is becoming more and more common at restaurants; I saw it both last night for dinner and this morning for breakfast.  I haven't accepted the practice; I pass that charge right back to the server in the form of a reduced tip.  A 20% intended tip on the pretax bill becomes closer to 16% because the 3% charge is applied to the sales tax as well.  Is it "fair" that I make the server pay?  Not really, but if management is adding this charge "because they can", I'm passing it on "because I can" as well.

[kphoger]

The 3% additional charge is becoming more and more common at restaurants; I saw it both last night for dinner and this morning for breakfast.  I haven't accepted the practice; I pass that charge right back to the server in the form of a reduced tip.  A 20% intended tip on the pretax bill becomes closer to 16% because the 3% charge is applied to the sales tax as well.  Is it "fair" that I make the server pay?  Not really, but if management is adding this charge "because they can", I'm passing it on "because I can" as well.

I have mixed feelings about this.

1.  If the restaurant is passing the cost on to you the customer in the form of a surcharge, then conceivably the restaurant could pass the newfound savings on to the server in the form of a base pay raise.  If they instead choose to use those savings in some other way, then that's on them, not you.

2.  If the restaurant had increased the menu price instead of adding a surcharge, then you wouldn't even think twice about paying a higher tip.  If you instead base your tip amount on the itemization of the bill rather than the total price, then that's on you, not them.

[HighwayStar]

When businesses charge the customer the 3% separately for using a card, they're just adding on to their bottom line because they can, and an insignificant amount of people switch their payment choice. That expense was already factored in to the product's cost.

The 3% additional charge is becoming more and more common at restaurants; I saw it both last night for dinner and this morning for breakfast.  I haven't accepted the practice; I pass that charge right back to the server in the form of a reduced tip.  A 20% intended tip on the pretax bill becomes closer to 16% because the 3% charge is applied to the sales tax as well.  Is it "fair" that I make the server pay?  Not really, but if management is adding this charge "because they can", I'm passing it on "because I can" as well.

I've read a lot about this becoming common and still have not found one in the wild, I just consider myself lucky.
That said, I think your approach is the best one. Restaurants need to just incorporate rising costs into the menu prices. Adding a CC fee feels like a dishonest practice used to get you in the door with seemingly lower menu prices.

Regarding places that are "cash only" I suspect more than a few are doing it to under report income for tax purposes.

[kphoger]

It comes down to how you conceptualize the fee.  Is it (a) a cost of business that should be covered by the business's budget, but that now is being covered by the customer instead?  Or is it (b) a normal price increase, such as happens all the time due to inflation and such, but that now is being itemized differently on your bill?  In my opinion, it cannot be (b) if cash customers are still paying the old price.

I first started noticing this at gas stations, not restaurants:  different prices per gallon for cash vs credit card customers.  This is clearly passing along a cost of doing business to the customer, not just a price increase at the pump.  Or is it?  Without it, I suppose, the new price at the pump would simply be between the two instead.

How about this...  Imagine a business in a place that has been hit hard by global warming.  Their electricity bill has gone up dramatically due to increased a/c usage.  How would you feel about a "climate change surcharge" on your bill?

[Scott5114]

- How is this not "politics"?

It doesn't mention any individual politicians or political parties. That said, if it becomes rancorous and/or people start getting partisan in their replies, it will be locked. But so long as everyone is civil it is fine.