When my wife and I were planning our honeymoon, we decided our dream trip would be a safari in South Africa. The cost of flying to Africa was a daunting proposition for a pair of newlyweds. However, thanks to credit card rewards, we were able to fly to South Africa for less than $200 total.
Since then, we’ve used credit card rewards to offset the cost of a hotel overlooking Sydney Harbor in Australia, a hut in the rainforests of Costa Rica, and a Japanese ryokan at the base of Mount Fuji.
Trips to assist impoverished farmers in Zambia, visit tribes in Ethiopia, and support the oppressed LGBTQ community in Armenia were made possible, in part, thanks to nearly free flights, paid for in credit card points.
Putting some of our monthly expenses on a credit card and diligently paying off the balance has enabled us to share countless experiences we never would’ve had if we were forced to pay for flights and hotels completely out of pocket.
And I’m not alone.
An estimated 250 million Americans use a credit card that earns benefits.
These perks include airline miles, hotel points, or simply a cash-back bonus that reduces the rising cost of everyday purchases like groceries, gas, and back-to-school clothes.
Millions of Americans would be left without their credit card benefits if Sens. Dick Durbin, D-Ill., and Roger Marshall, R-Kan., are successful in passing the Credit Card Competition Act.
Their legislation would apply a backdoor price control to credit cards.
Interchange fees are the small fees credit card companies charge businesses in exchange for using their networks and assuming risks related to fraud and nonpayment.
By regulating these fees, large retailers stand to rake in extra money.
Take Amazon: they had $280 billion in sales in North America alone. Assume they only pay 1% to accept credit cards so they probably pay about $2.8 billion in fees.
However, a 50-basis point cut could net the company a $1.4 billion windfall thanks to the Durbin-Marshall bill.
Supporters of the scheme claim retailers will pass any savings on to customers.
But history proves that’s not the case.
When Sen. Durbin passed a similar policy years ago for debit cards, 99% of retailers did not lower prices to reflect their lower debit card transaction costs.
Further, the caps on debit card fees caused banks and credit unions to lose so much money they were forced to eliminate most free checking accounts, hike fees, and increase charges for replacing lost cards.
Durbin’s fee caps didn’t save consumers a dime. In fact, the average low-income banking customer paid $160 a year more in additional fees.
Similarly, if Durbin and Marshall are successful, companies and financial institutions will be forced to make up the difference by eliminating benefits and raising prices.
Rewards like airline miles, hotel points, and cashback bonuses will be a thing of the past. And so will credit cards with no annual fees.
The proposal would also kill off another 250 million store-branded credit cards.
Americans use these cards to snag discounts and other perks at stores ranging from Cabela’s to Zales, Petco to Bed Bath & Beyond, and Ikea to Victoria’s Secret.
This would cut the sales of hundreds of businesses around the U.S., resulting in layoffs and, in some cases, store closures.
As much as the proposed legislation would hurt large retailers with store cards, small, local mom-and-pop stores would be impacted the most.
That’s because customers who use credit cards spend more than people who pay with cash.
Further, the cost of accepting cash is often higher than accepting credit cards.
That’s because incorrect change, theft, and the expense of the insurance necessary for businesses handling large amounts of paper money all drive up the cost of accepting money over credit cards. This cuts into small businesses’ razor-thin margins.
Small community banks and credit unions will pay the biggest price of all. These small businesses would lose billions annually in interchange revenues.
Americans simply can’t afford for Congress to apply backdoor price caps on credit cards.
From preventing people from enjoying fun perks, to the serious impacts the policy would have on lower-income Americans, small businesses, and neighborhood financial institutions, Durbin and Marshall’s plan would hurt almost every American right in the wallet — just when we can afford it the least.
Drew Johnson is a government watchdog who serves as a budget, tech and energy policy expert at several free market think tanks. Read Drew Johnson's Reports — More Here.
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