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Credit Card Competition Act Could End Card Reward Programs Yet Decrease Consumer Debt

Credit card cash back and travel rewards have always been an incentive to consumers looking to feel rewarded for their purchases. But if a group of legislators can pass the Credit Card Competition Act into law, these enticements will be a thing of the past. 

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Currently, retailers and consumers pay an estimated $137.8 billion each year to credit card issuers such as Visa and Mastercard along with their partner banks, as a result of credit card swipe fees. As part of these fees, credit card incentives such as cash back and travel are offered to consumers.

About the Credit Card Competition Act

Several elected officials, however, want to end swipe fees. Spearheaded by Senators Dick Durbin (D-Illinois) and Roger Marshall (R-Kansas) and in the House of Representatives Peter Welch (D-Vermont) and Lance Gooden (R-Texas), the Credit Card Competition Act would allow retailers the opportunity to process credit card transactions without being charged with processing fees. If passed, this could divert millions of dollars from credit card issuers and banks, placing revenue in the hands of large and small retailers and consumers. Elected officials hope to pass and sign the act by the end of 2023.  

Experts contend that one of the biggest consequences of processing fees being diverted is that credit card companies will scale back on their reward programs — a caveat that many consumers consider a bonus to using their credit cards. 

“There is no evidence that retailers will pass savings to customers. If the bill passes, retailers will make more money on each transaction with no added benefits given to the consumer,” Jason Stverak, Credit Union National Association deputy chief advocacy officer for Federal Government Affairs, said on the “Live Richer” podcast. When a similar bill passed for checking accounts several years ago, checking rewards programs ended, Stverak added. 

As a result, lobbyists and cardholders are appealing to other elected officials through the slogan “Hands off my rewards.” 

Credit Rewards or Consequences?

In the 1980s, credit card companies began offering rewards to consumers. Incentives such as travel points, cashback and other rewards entice consumers to use their credit cards to earn additional points. These credit card rewards are often refunded to consumers through the interchange or swipe fee currently contested through the Credit Card Competition Act. 

“Whether or not credit card rewards are actually rewards is entirely dependent on the individual circumstances of the cardholder,” Jack Hill, CEO of DebtHammer, told Finurah. “To get the most value out of credit card rewards, it’s important to choose a card that aligns with your spending habits and financial goals. For example, if you travel frequently, you may want to choose a card that offers rewards in the form of miles or hotel points. If you prefer cash back, you’ll want to choose one that offers a high cashback rate on the types of purchases you make most often.” 

Yet public advocates believe it’s not just as simple as choosing the best offer. Instead, advocates believe that it reflects an issue of increasing debt and costs in the United States. 

According to Lending Tree, the credit card balance for American consumers is $925 billion — a $38 billion dollar jump from the first quarter of 2022. According to the Hispanic Leadership Fund, the costs associated with credit card use — not even late or overdraft fees — cost an average family more than $900 per year. 

An end to credit card rewards would help to decrease American consumer debt as demolishing swipe fees would lower prices and inflation costs. 

Credit Incentives For Entrepreneurs and Established Businesses

At present, credit card issuers Visa and Mastercard receive the greatest benefits from swipe fees. The average swipe fees are an estimated 2.25 percent of a purchase. Merchants must pay these fees to card issuers and their partnering banks. If the Credit Card Competition Act becomes law, ending swipe fees would boost profits for retailers and smaller businesses. 

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