Jan 28

For nearly all my adult life, I’ve been using one sort of Reward Credit Card or another. It’s one thing to get miles you may have a tough time using, and quite another to watch as a 529 college savings account funded with these rewards is on track to pay for a full semester of my daughter’s college. I’ve ignored the series of articles that reference “studies that prove consumers spend 12.3% more on credit cards than with cash.” It’s not that I think such things are possible. Nor do I think myself immune to the attraction of the impulse buy. It’s simply that there is no study I’ve found which offers real world data. Giving college students $20 and a $20 gift card to compare behavior isn’t the kind of study that will convince me of anything.

That said, I don’t kid myself into believing there’s no cost to this. The money in that 529 account came from somewhere. I’ve always known that the credit card companies are making money both on the interest  paid by those who carry a balance month to month, and from the fee they charge the merchants to process the transaction. One can rationalize that I’m getting back the money the bank charged the merchant or that the merchant’s profits are lowered by picking up the tab. Worse, others have suggested that the merchants are all forced to charge more and prices are all a bit inflated due to the bank’s fees.

The banks also required the merchants accepting their credit cards to not charge extra for credit transactions. In a victory of the Merchants vs The Banks, this was deemed illegal, and starting yesterday, merchants are allowed to add a ‘swipe fee’ for card usage. Interesting to note that ten states have laws restricting any type of surcharge fees: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.

My advice if you don’t live in one of these states is to pay close attention. Stores that plan to charge an adder for a credit card transaction need to post it clearly near the register. If the fee is more than your reward, you might wish to consider going back to cash. (Except for the fragile tech tech purchase on a card that offers a year’s damage protection. That’s worth every bit of a percent or two to me.)

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Jun 09

In October, 2009, I wrote The Unintended Consequences of CARD, and discussed how any limit on bank fees would result in them looking to replace that lost income elsewhere.

It took some time, but now I read Swipe fees give retailers a windfall of billions at the expense of consumers, which confirmed this trend is just starting. In this case, the story highlights how Wal-Mart lobbied to reduce swipe fees, the fees paid by merchants to tap into the debit card network. This seems to me to be natural, I’d like to pay lower fees for whatever services I get, why shouldn’t merchants do the same? The article’s author is Bill Cheney, president and CEO of the Credit Union National Association. His beef with this, is the credit unions which get this fee will seek to make it up elsewhere, and the consumer won’t see the savings at the register, the retailers will just pocket that money. Unintended consequences in action.

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