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This offer could wipe out your credit card rewards.
Key Point
- The Credit Card Competition Act 2022 requires credit card companies to allow alternative payment networks.
- Retailers can choose the payment network with the lowest fees.
- Because card issuers use processing fees to fund their rewards programs, this change may reduce your credit card rewards.
For many consumers, loyalty cards are the payment method of choice for nearly every purchase. That way, you can earn cash back, travel rewards, or other types of reward points for every dollar you spend.
Rewards credit cards have been around for so long that it’s hard to imagine they’ll one day disappear. However, it is a serious possibility if the 2022 Credit Card Competition Act is passed.
The bill is supposedly designed to save merchants and consumers money by increasing competition in processing credit card payments. It may be good for retailers, but I doubt consumers will benefit. And now the senators behind the bill are looking to speed it through the legislative process.
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What is the Credit Card Competition Act 2022?
The Credit Card Competition Act of 2022 is legislation introduced by Senators Dick Durbin and Senators Roger Marshall. Prohibit credit card companies from limiting the number of card networks that merchants can use to process transactions.
Current systems allow banks that issue credit cards to require transactions to be processed through a particular payment network. For example, when paying with a Chase Visa card, the merchant must use Visa to process the payment. We also pay Chase and Visa processing fees that are part of the transaction.
If the credit card competition law is passed, banks will have to work with alternative payment networks. For example, we could not require merchants to process transactions with Visa or Mastercard. Retailers will now be able to choose the payment network that offers the best deals, rather than sticking to the network demanded by the bank.
goodbye reward
Credit card processing fees may not seem particularly important to the everyday consumer. But whether you’re using rewards to get rich or want to earn extra cashback on your regular bill, these fees are pretty significant.
Here’s why. Processing fees are a big part of how credit card companies make money. Transaction fees accounted for $51 million of his $176 billion in revenue from card issuers in 2020. Their only major source of income was credit card interest.
Credit card companies can pay 1%, 2%, and sometimes more because They are receiving swipe fees from merchants. The Ascent’s survey of average credit card processing fees found that exchange fees ranged from 1.15% to $0.05 to 3.15% plus $0.10 on average.
Being forced to work with other payment networks means card issuers have to accept lower swipe fees. And if they are making less money, you can be confident that they will continue to offer the same rate of return and not suffer losses. Already have.
What happened to the debit card perks?
It may seem like a long time ago now, but there was a time when debit cards offered great perks. There are still debit cards with rewards, but they are rare and credit cards are much more cost effective.
The impetus was the Durbin Amendment, a last-minute addition to the 2010 financial reforms. The amendment required the Federal Reserve to cap debit card swipe fees at a reasonable rate set at 0.05% plus $0.21. Named after Dick Durbin. Yes, it’s the same Dick Durbin trying to push this credit card processing law.
Banks needed to drastically lower their debit card processing fees, so most banks simply eliminated their debit rewards programs. To make matters worse, many banks have increased checking account fees to make up for lost revenue. A University of Pennsylvania study found that checking account fees have risen by more than 70% on average.
Supporters of the Durbin Amendment argued that it was a win for consumers. If merchants save money, they can pass those savings on to their customers at lower prices. As you can imagine, it didn’t happen. According to his 2015 study by the Federal Reserve Bank of Richmond, here’s what retailers really did:
- 77.2% did not change their prices
- 21.6% price increase
- 1.2% price reduction
Studies have shown that limiting debit card processing fees has not been beneficial to consumers. If credit card processing fees were to do the same, they would end up being negative. The rewards will be much smaller and the price will stay the same or increase.
what happens next
Durbin and Marshall introduced the Credit Card Competition Act as a separate piece of legislation, but now seeks to attach it to the Defense Expenditures Act, the National Defense Authorization Act (NDAA). The shady logic behind this move is that veterans are being charged more for purchases at military kiosk due to credit card swipe fees. But the more likely reason is that the act could pass Congress sooner if it was attached to a defense bill.
Discussions on the NDAA will begin at a small group of lawmakers on October 11th. A final vote will not be held until after the midterm elections in November.
This credit card bill has not yet completed the transaction. If that’s the case, Rewards enthusiasts will breathe a sigh of relief. , you can let us know that you are against the credit card competition laws.
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