Credit cards are forcing poor people to pick up the tab for first-class flights and posh hotel stays for the rich and well-born. That’s what a recent New York Times op-ed claims, anyway.
According to the column’s authors, Chenzi Xu and Jeffrey Reppucci, credit card rewards have “helped affluent professionals flood Instagram with envy-inducing shots of white sand beaches, hotel suites, and plush airport lounges,” and “poor consumers are ultimately footing the bill.”
There’s just one problem with Xu and Reppucci’s argument. It’s simply not true.
The op-ed cherry-picked a few studies and parroted back some well-worn — and entirely bogus — talking points by a few big retailers hell-bent on attacking credit card companies for their own gain.
The reality is that 77% of all low-income credit cardholders have the kind of rewards cards the op-ed attacks. And these lower-income Americans rake in much of the $75 billion in rewards that flow back to consumers in the form of cashback bonuses, grocery rewards, gas points, free hotel stays, and airline miles.
These benefits help many struggling families afford daily expenses like groceries and gas through cashback bonuses. And for every person who uses his credit card benefits to fly first class to the Maldives or to book a bungalow in Bora Bora, dozens of everyday Americans utilize their rewards to take less exotic trips they couldn’t otherwise afford — like meeting a new grandbaby or taking the family on a dream trip to Disney World.
The Times piece attacks cards with high annual fees used by “big-spending travelers and diners.” Those cards are certainly used by one-percenters and people who play the credit card point collection game, and the nearly $700 annual fees are part of the price of admission.
But a WalletHub list of the most popular credit cards doesn’t include the $695-a-year AmEx Platinum or the Chase Sapphire Reserve with a $550 annual fee. What the list does include, however, is a $99 per year Southwest card, a no-fee Costco Visa card that collects 2% cash back on Costco purchases, and a free Shell-branded Mastercard that saves users 10¢/gallon on gas.
In other words, the most popular cards are fee-free or low-cost credit cards that offer regular folks a chance to save a few dollars.
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Unfortunately, those rewards would all be gone if a few big box retailers, some misguided members of Congress, and the authors of the disingenuous op-ed get their way.
Sen. Dick Durbin (D-Ill.) is leading a charge to slap the same disastrous regulations on credit cards that he managed to apply to debit cards in 2010.
Durbin wants to put socialist price controls to limit interchange fees — the roughly 2% fee credit card companies charge for using their networks.
These interchange fees also provide retailers with valuable insurance. Credit card companies, not stores, are on the hook when a customer fails to pay the charges. The fees also help pay for the rewards cards that make up 80% of the American credit card market.
Congress passed Durbin’s original price cap scheme on debit card interchange fees on the promise that retailers who paid lower debit card interchange fees would pass the savings along to customers.
They didn’t.
Retailers kept their prices the same. Americans paid the same prices at the cash register, and the retailers simply pocketed the difference.
What did happen, however, was that banks and credit unions lost money on debit cards. They were forced to charge customers higher fees and require higher account minimums. Perks like free checking were eliminated at many banks across the country.
The damage would be even worse if Durbin’s disastrous proposal is applied to credit cards — and lower-income Americans would be harmed the most.
If federal lawmakers vote to artificially cap interchange fees, annual credit card fees would go up, pricing many lower-income Americans out of the market. Credit card rewards programs would become a thing of the past as well. That means saying goodbye to hundreds of thousands of family vacations and billions of dollars in cashback bonuses. It also likely means less credit will be extended to marginalized consumers and small businesses.
In fact, consumers would see no real positives if Durbin gets his way. The only people benefitting would be big retailers and Durbin himself, who has snagged hundreds of thousands of dollars in campaign contributions from some of America’s biggest retailers, including Walmart and Home Depot.
The Times refers to Xu as a finance professor and Reppucci as a grad student. But they come off less like objective researchers and more like paid PR representatives for retailers who have been financing a shady effort to snag a few extra pennies per transaction.
For the sake of the 166 million Americans who use and benefit from credit cards, Congress should ignore efforts to attack interchange fees. Kowtowing to the self-serving motives of big retailers and filling the campaign coffers of Sen. Durbin isn’t worth destroying rewards that help make life a little easier for so many.
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