Luke “Flexo” Landes of Consumerism Commentary has a guest post over at Wealth Pilgrim on whether the government should have a ban on reward credit cards. The post had the flavor of a thought experiment, and I'm not aware of any talk to implement this.
Nonetheless, the thought of that idea sends a cold chill down my spine, not just because I like my perks — I do — but because the groups that might be calling for the change will be shooting themselves in the foot. Getting the powers that be to “keep you from getting yourself into trouble” or to “protect you from that bully” , play big brother, or to keep that bully from picking on you is counterproductive, because the energy expended at complying with the powers that be are non-productive. It's a burden to everyone, and it hurts just about everyone.
The beauty of credit cards, if you have good credit, is that you can basically choose what terms you want and what perks you want. It's a bit like ringtones. I have as my weapon of choice the I have the Chase Sapphire® card. Every once in a while, I get enough points that I can cancel a charge from my bill. I like that! Other people have airline cards, or Starbucks cards, or whatever. Why the heck not? Whatever floats their float!
If merchants push for this, they'll get bitten too
Supposedly the reward cards carry higher interchange fees than non-reward cards, and this directly hits the merchants' bottom line. So banning these cards will help the merchants, right? Wrong. When the merchant account providers are restricted in what they can do to make money, they're not just going to sit there. They're going to make it up some other way. Consider that merchant account providers can no longer demand that merchants accept all credit card transactions, regardless of amount. Some merchants will set minimum charge amounts, and the issuers won't see that interchange income. If we ignore the fact that the merchant is probably going to lose customers, then the issuers will bump up their prices, charge extra fees, etc., to make up the new shortfall.
It's the same thing with getting rid of reward cards. Once the financial advantage of carrying a reward card goes away, then a number of things can happen. First, the additional income that the issuers got from the reward cards will be made up somehow. Second, the people who were using the card will use them less now that the fun has been taken away. Less money flying around means less money for the merchants. Third, it's one more measure of oversight that is a non-productive drag on the economy. The short-term gain in interchange fee expense will be handed back, and then some.
If there's a ban on reward credit cards, what about low-interest cards? High-risk (high-rate) credit cards?
What about credit cards in general? That's the danger of banning any kind of credit card. It's a step toward banning more. It's the erosion of choice.
I have a rewards airline card since 1990. Banning a particular card because it has higher costs does not make sense. Don’t they want those customers. maybe the should factor in their costs into the price.
Woah. If they do this they should expect a huge outcry. Heck, there should be a huge outcry now to prevent it. You’re right, this is a slippery slope towards making more and more credit card benefits disappear. Yes, they would be shooting themselves in the foot!
Definitely should not ban any kind of card! Not only would consumer choice disappear, but you’re right, all of our rewards would too!
I don’t think banning such cards is really justified. I know that you described this other post as a just thought expirement, more or less. Whew 🙂 Keeping that in mind, I have to ask: how does banning such cards provide a net benefit overall?
While I’m for intervention where there are practices that are truly unfair to consumers, this seems like a situation where personal choice and responsibility comes into play. Besides, I think you’re right that we don’t want to go down a slippery slope of banning things easily.
Every movement has a point. Yes I agree to why banning rewards card are being considered. You actually get your reward out of merchant fees your CC owner is receiving for your purchase. It’s not merchant who is paying from his pocket, its you who are paying more to merchant so that he can give fees to the issuing company. see my point? You are getting reward out of your own money.
But banning this would be similar to banning high cost of medical care or legal fees. Ban all reward cards to reduce price of items. If govt can do that then consumers will be happy.
I agree that there’d be a major hue and cry if these cards were banned. I’d be out there whining myself, since I do have a couple of rewards cards. One of them provides me with a prepaid Visa each year to give to my daughter and son-in-law for Christmas. A newer one that I just got rewarded me with 30,000 points after my first purchase; I’ll trade that in for $300 cash and put it in my someday fund.
I would be upset if reward cards were banned. As you said, choice is highly important to consumers. And it will definitely be a slippery slope once we are on it.
No, that’s as silly almost as saying should the govt ban free condiments,
retailers don’t have to accept credit cards, they do so because of impulse
and the savings of cash. However, many small businesses and restaurants are cash only, gas stations give discounts, you cannot pay your taxes/utilities/ and many services with a credit card or else you get charged a fee.
As for “rewards cards” the author is misled, retailers talk about “Rewards” cards , there is no such thing, every card and its issuer can decide to offer rewards, however the interchange rate is determined on the type of card,
you can have a mastercard platimum and have no rewards or a signature
and a few rewards, or a platimum with more rewards, the type of card has the same interchange fee, signature a bit more, but issuers offer the same rewards such as cash back and miles regardless of platinum v. signature.
There is a basic card, but many issuers don’t offer it, the differences are in services offered by visa/mastercard, such as travel support and warranty.
Eliminating rewards would however eliminate an incentive to pay with credit
but maybe not if folks don’t usually carry cash.
Similarly since cash handling costs money, would folks be inclined to have cash users pay .5% more to cover cash handling such as running to the bank
obviously not, both for convenience and its lower fee.