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How an effort to cut credit card fees could impact your credit card points

This illustration picture shows debit and credit cards arranged on a desk on April 6, 2020 in Arlington, Virginia. (OLIVIER DOULIERY/AFP via Getty Images)
This illustration picture shows debit and credit cards arranged on a desk on April 6, 2020 in Arlington, Virginia. (OLIVIER DOULIERY/AFP via Getty Images)

Congress is looking to cut fees that credit card companies charge merchants for processing payments. But if that happens, credit card companies say rewards programs will suffer.

“If merchants chose to lower prices because their overhead is decreased, that could be great for consumers,” Sara Rathner says. “On the other hand, there’s no requirement to do this. Merchants could just pocket the extra money.”

Today, On Point: The Credit Card Competition Act – and what it could mean for what’s in your wallet.


Sara Rathner, credit card expert for NerdWallet. Author of “What to Expect if the Credit Card Competition Act Passes.”

Richard Hunt, executive chairman of the Electronic Payments Coalition, a lobbying group that represents big banks, credit unions and payment card networks like Visa and Mastercard.

Morgan Harper, director of policy and advocacy at the American Economic Liberties Project.

Also Featured

Ben Williams, credit card points evangelist.


Part I

ANTHONY BROOKS: Millions of Americans love their credit card perks. Benefits like cash back and points for air travel. But it turns out those benefits aren’t free. The big credit card companies charge merchants swipe fees to pay for them.

And the merchants pass the costs along to you. Visa and MasterCard control most of this market, which critics call an anti-competitive duopoly. A push in Congress seeks to change that, which could help consumers, but also end, or at least reduce, all those points. Now we’re going to get to that in a moment, but first, let’s meet Ben Williams of Provincetown, Massachusetts.

He’s one of those Americans who loves his credit card points.

BEN WILLIAMS: Getting into the credit card kind of miles and points game has let me go to so many places and so many places I couldn’t have imagined going. Flying all over the world, traveling over a million miles, seeing dozens of countries, meeting all kinds of incredible people and having the most wonderful opportunities, and in general, not having to pay for it.

BROOKS: Ben’s credit card points journey began back in 2011 with a trip to India.

WILLIAMS: Yeah, so after that first trip and seeing how quickly you could earn points through travel and through spending on these credit cards and then signing up for more credit cards and seeing how you can get more points that way, it does become a little bit of an obsession. You start to see not just ways to get points but ways to spend them most efficiently.

So it surprises and probably troubles some people to hear that I have 19 credit cards at the moment.

Each of them provides different types of benefits. Most of those cards, I would say it certainly points earning benefits. So lots of these cards come with other perks designed to keep you hooked. So maybe one particular card gives you lounge access and you want to be able to rest in the lounge on your trip.

Another card might give you a benefit for shopping in a particular store.

One, you have to get a bigger wallet, because you start accumulating all of these different credit cards. And then two, you have to remember which card am I going to use for this particular transaction so I can get as many points as possible?

There were years where, it was certainly in the hundreds of thousands, if not millions of points were coming down. There were other times where you could find things that you could buy. There was a common practice of buying stand mixers and then selling them just to accumulate points. And the only problem with that is that at the time I lived on a fourth floor walkup in Manhattan.

And so you get pretty tired carrying a lot of stand mixers up four flights of stairs. I can tell you that for sure. I have a big trip coming up. I’m starting with friends in Thailand, and then from Thailand, I’m heading to Kenya. And then from there, I took a creative points and miles scheme flight that goes from Kenya through Ethiopia to Turkey, and then ends up in Malta, and then I land back in New York.

All of this was paid for by points.

But if points went away entirely, I’m not going to spend $10,000 on a flight, I can tell you that for sure. I think it could certainly alter my patterns and maybe not taking as luxurious of a flight or it could just say maybe there’s a different way to get there, some less expensive way to get there, or maybe just not as many trips.

BROOKS: That was Ben Williams of Provincetown, Massachusetts, a peripatetic credit cards points evangelist, 19 credit cards, turns out he’s in pretty good company, about one in every four American households has an airline credit card. But as we mentioned, the credit card points are not free. And it turns out they’re the result of an industry that’s not particularly competitive.

So lawmakers in Congress want to change that with something called a Credit Card Competition Act. Which could reduce the number of points that people like Ben receive. Now, to help us understand all this, let’s welcome Sara Rathner. She’s a credit card expert for NerdWallet. She joins us from Richmond, Virginia.

Sara, great to have you. Thanks for coming On Point.

SARA RATHNER: Thank you for having me.

BROOKS: So let’s start with a basic question. How does the credit card point system work? And tell us who pays for it.

RATHNER: So the point system, there are two big ways you can earn rewards or two big things you can redeem those rewards for. Cash back, which is essentially what it sounds like.

You get a statement credit or even sometimes money deposited to your bank account and it’s a percentage of your spending, usually between 1% and 6%. Depending on your card. And then what we were talking, you were talking about with Ben, travel rewards, which are very popular. Where you earn points and miles that you can use to discount the cost of future travel.

BROOKS: Right.

RATHNER: And how are these paid for? Credit card companies typically make money in a couple of different ways. One is interest that is charged on credit card debt. Another one is through fees that are charged to the holders of credit cards. That includes things like annual fees, late payment fees, foreign transaction fees.

If you use your card overseas, things like that. And then these interchange or swipe fees. That the Credit Card Competition Act is looking to address.

BROOKS: Right. Now say more about that, when we talk about interchange or swipe fees, we’re literally talking about every time you swipe that credit card in a store or in a restaurant or wherever it is you’re paying an extra, what, 2% or 3%, something like that?

RATHNER: Around 1% to 3% of the purchase price, is what the swipe fee result is equal to, and it’s not just for in person transactions. It’s also occurring when you make online purchases as well. So the swipe fee is charged by what’s called a payment network. That’s Visa, MasterCard, also American Express and Discover. Those are the big four that we have here. And what happens is when you use your credit card to make a purchase, at a merchant, whether it’s in person or online, you don’t pay the merchant directly. The credit card company pays on your behalf. And then when your bill is due, you pay the credit card company back. Now, the credit card company and the merchant also don’t talk directly to each other.

In that transaction, the payment network is the intermediary that facilitates that conversation, and for that work, they charge that swipe fee.

BROOKS: I see. All right. So a concrete example. If you go out to eat, for example, use your credit card to pay for a big meal, say, with three or four people, a $100 bill, a merchant may incur a fee of 3%. So that would be an extra 3% on that $100 purchase. And this is a key reason why some merchants have become, have begun adding surcharges for those who don’t pay in cash. Correct?

RATHNER: Yes. I’ve seen that at restaurants. Even my dermatologist’s office charges a 3% surcharge if you use your credit card to pay your copay.

And when I go there, I typically use my debit card to avoid that extra fee.

BROOKS: And it’s a lot of money. I’m looking according to a Nielsen report, overall, this totaled about $160 billion in card processing fees just last year. That’s a lot of money. It adds up for these credit card companies.

RATHNER: It does. And a lot of consumers prefer using their credit cards, to make payments, even really small purchases. That’s pretty typical, more typical in the United States than in other countries, but part of it is rewards. Part of it is the convenience of using the credit card. Part of it is they need the credit card to float the purchase for a while before they owe the money back.

And also, protections. Credit cards have more consumer protections than debit cards or cash do. So if you’re making a major purchase and something goes wrong, you have a little bit more recourse if you need to get your money back.

BROOKS: All right. So I want to talk to you about what Congress is trying to do under the Credit Card Competition Act of 2023.

But first, to set that up for us, tell us about the power that Visa and MasterCard have in this system. Because critics use words like an anti-competitive duopoly. Can you explain what’s going on there?

RATHNER: Yeah. It helps to understand what this act seems to do. So Visa and MasterCard are the most prevalent of these payment networks.

And the act seeks to stop them from being able to restrict the merchant from choosing a second payment network for these purchases, in theory by restricting that, then there’s no competition and they can charge a higher rate and that can hurt merchants and therefore hurt consumers.

So the idea is to introduce competition, or at least the option of competition, to ultimately drive these fees lower.

BROOKS: So under the current system, for instance, if a merchant accepts credit cards, it’s going to be locked into whatever payment network that credit card runs on. And most of them are either Visa or MasterCard.

And so the merchant has to pay whatever fee that network charges. It can’t shop around for a better rate.

RATHNER: Yeah. There are some negotiating practices in play, especially for major retailers, but for the most part, yes.

BROOKS: And so how would Congress address that? How would they try to shake things up a little bit and create more competition?

RATHNER: So it’s about eliminating that barrier to other payment networks coming in as an option. And so that’s basically it. So really what would happen is that now a merchant would, they could choose to accept another payment network. They might not. That’s the thing.

Everything is really speculative right now when it comes to this. So I would definitely say that up front. Having the option to choose another payment network doesn’t mean the merchant will take that option. It just means that the option is available. And how long might it take for there to be a noticeable decrease in fees?

We don’t know.

BROOKS: And what would be the other results of this? Would people like our friend Ben from Provincetown lose all those points in his ability to travel the globe the way he likes to do?

RATHNER: I’m with Ben on credit card rewards for travel. I’ve definitely taken some heavily discounted trips around the world.

So I’ve benefited from this as well. It’s hard to say if these awards would disappear. I know there’s a lot of gloom and doom language around that. But awards, at least in the United States, are an incredibly strong marketing tactic on the part of credit card issuers. Because there’s so much competition in that marketplace that rewards are how a lot of cards stand apart from other similar cards.

If you have cards that earn, say, two points per dollar on travel and two points per dollar on dining, there are several cards that do that. So how else can they differentiate themselves from each other? They could do that through sign up bonuses, maybe through additional rewards categories, other perks like lounge access or credits toward TSA Precheck.

If you take all that away, all of a sudden, you’ve leveled the playing fields as far as credit cards go. And consumers are less likely to switch.

Part II

BROOKS: We’re talking about an effort in Congress to cut so called swipe fees that credit card companies charge merchants for processing payments. But if that happens, credit card companies, big banks say rewards programs will suffer. So who really wins? Who loses in all this?

We heard a lot from our listeners on this. On Point listener Juliet Clarkson of Windsor Locks, Connecticut, says her and her partner prefer using their credit cards because they get cash back in airline miles. But if those rewards programs went away, she would have to reprioritize.

JULIET CLARKSON: I would probably stop using my credit card for the majority of my day-to-day purchases if I was not getting cash back on it.

I would still use it for online purchases or for larger purchases where I wanted that purchase protection. But in my day-to-day life, I just don’t think it would be worth using it if I wasn’t getting cash back.

BROOKS: And here’s On Point listener Cindy Murray of Bennington, Vermont. She says her and her husband are currently using the cash back on their credit cards to help pay for the renovation of their home, but she doesn’t like the fees the credit card companies charge.

CINDY MURRAY: I think it’s a great idea that they stop charging merchants, especially the small businesses. We just moved to Bennington, Vermont, and I’ve noticed many of the small businesses have stopped taking credit cards or are charging the 3% to use the credit card, which at that point, I pay cash. Because it’s going to cost me money to purchase from that store.

So I don’t think that’s right. I think the banks are making a ton of money and they should not pass it on to their loyal customers like me. Who have been with CitiBank for, I can’t even remember how long.

BROOKS: And finally, here’s John Hallman of Des Moines, Iowa, who says using a credit card in his area now comes with a cost.

JOHN: Most restaurants that you go to charge you an upcharge right on the receipt for using a credit card. In other words, there’s a cash discount. So the points become meaningless. You’re essentially, the vendor is passing on their cost for the points to the customer. So I’m paying for my own points, where it used to be the vendor paying for their own points.

And I’ve noticed this in more and more restaurants. It may be getting close to 80%, 100% of the sit-down restaurants are doing this now.

BROOKS: All right. And we’re joined by Sara Rathner. She’s a credit card expert for NerdWallet. And Sara, pick up on that point that John Hallman of Des Moines just made.

This idea that these points aren’t free. You’re paying for them. Consumers are paying for them in a big way.

RATHNER: It’s true. There’s no such thing as a free lunch if you want to talk about restaurants up charging, right? And yeah, the money, the revenue that funds these rewards does have to come from somewhere.

And on the one hand, it feels really unfair, because consumers who don’t qualify for these types of rewards cards, maybe who are in debt, who are paying high interest rates, are in effect paying into the points that other consumers get to enjoy. On the other hand, then consumers might feel like I need to get the points because if I’m paying more for everything anyway, I might as well get some of that money back.

And so it creates this cycle.

BROOKS: I’d love you to speak to this issue as well. And that is, the broader point here, these points aren’t free, somebody’s paying for them and really a relatively small, mostly affluent or middle-class portion of the population benefits from these points. And one of the arguments that the critics make is that these points are actually being subsidized, at least in part, by low-income credit card holders who pay high interest rates on their balances.

So the critics say it’s a system that actually contributes to economic disparity. Is that, how big an issue is that? I’m interested to hear what you have to say about that as someone who’s looked at this issue.

RATHNER: As a percentage of other issues that contribute to economic disparity, I couldn’t say. Because there are lots of issues that are contributing to that.

It’s certainly something that can have an effect. But lending in general is, borrowing money is more difficult and more expensive when you are, perhaps you have a lower credit score or lower income or fewer assets or higher debts. When you apply for any sort of loan or credit card, and the lender is concerned about your ability to repay, if they accept your application, they’re going to give you terms that are not as generous as somebody else would get if they had higher income, more assets, less debt, and a higher credit score.

And rewards are part of that, but it’s a much bigger picture.

BROOKS: So I want to introduce Morgan Harper. She’s director of policy and advocacy at the American Economic Liberties Project. She’s in favor of what Congress is trying to do under the Credit Card Competition Act of 2023. And we want to talk to her about why.

And Morgan, good to have you. Thanks for joining us.

MORGAN HARPER: Great to be here.

BROOKS: Where do you want to jump in? I know you’ve been listening patiently to everything.


BROOKS: But what have we left out so far in this conversation? What’s on your mind?

HARPER: I do think it would be useful to build off of a couple of points, and that both Ben and Sara are making.

And the first is on these rewards. And I think you all are rightly focusing on the rewards issue because that has been a lot of the opposition where they’ve been focusing. But this is an important thing to clarify. The Credit Card Competition Act says nothing about rewards. This is not a bill that is trying to do anything or take away rewards or reduce rewards.

And in fact, research suggests that there would only be a .1% if any impact on rewards. one tenth of 1% impact on rewards. It’s very minimal. And so the real focus where we need to stay is what is this dynamic between the big banks that are issuing these credit cards, the Visa and MasterCard duopoly, and us as consumers and merchants. And how this dynamic is playing out.

And what we have heard from lots of small business owners and consumers is that it is no longer tenable to incur these types of fees, which as some of the folks that called in mentioned are now getting passed on to consumers and that there has to be, just some limit to how much small businesses, as well, can take. And the other thing that I would note, when it comes to rewards and this is something that Sara’s mentioning is, it’s not all it’s cracked up to be with the rewards, as well.

We are finding that people are actually paying more in these fees than they will ever see in rewards. Because the swipe fees are also what’s called an inflation multiplier. They are a percentage that are imposed on merchants. And so the bigger that the bill become, the more that they’re paying.

And so overall, we think the Credit Card Competition Act is going to be injecting much needed room for other networks to play in the space that we’ve seen have a positive impact in the debit card market. And also, it’s going to allow even smaller institutions that might want to issue more credit cards and play in that market, as well, to have room to do.

BROOKS: So let’s hear from a couple of small business owners. On Point listener, Donna Kramer Meritt is a small business owner in Massachusetts. She says the swipe fees that credit card companies charge impose a big burden on her business.

DONNA KRAMER MERITT: If credit card fees cannot be changed, I think we should at least have an option in Massachusetts to charge an additional service fee for those who wish to use credit cards.

In my business, people can pay cash, check, credit card, or even Venmo, and they choose to use credit cards more often than anything else, reducing the profitability of my business considerably. If I could upcharge those who choose credit cards, they would have a choice of paying in other methods. And if they wanted to use their credit card, I wouldn’t be at a loss.

BROOKS: And here’s On Point listener Ray Ryan of Fryeburg, Maine, who owns a small health food store with his wife called the Spice & Grain. He says that he resents how much he’s charged every time one of his customers pays with a credit card.

RAY RYAN: As a store owner, I probably went a few years before I found out that the rewards come out of my pocket. Because the credit card charges me more for rewards cards, as you probably know, and I just, I felt like that was some sort of robbery. If they’re claiming they’re giving their customers something, but they’re really not, they’re taking it from the merchant.

It’s really unfair. And I wish more people understood that, because I think we try to educate people about that. But I think less people would use credit cards, especially at local small businesses.

BROOKS: And with me is Sara Rathner. She’s a credit card expert for NerdWallet and Morgan Harper, director of policy and advocacy at the American Economic Liberties Project.

Later in the show, we are going to be hearing from a representative of the credit card industry. But Morgan, let me come to you. I’m particularly interested in what we heard Ray talking about there. That those fees really increase the price of his doing business. I assume that those fees overall are being passed on to the consumer, right?

HARPER: Yeah. And this gets to another point that I wanted to clarify, which is not all businesses are being treated equally in this arrangement by Visa and MasterCard, which is how high of swipe fees that they’re paying. We are finding that small businesses are actually paying a disproportionate amount of the overall swipe fee that are going to the networks, because they don’t have the ability to negotiate lower rates like a bigger retailer.

And not only are they paying fees altogether, which, as he was saying, just feels like it’s a bit of a robbery from him as a business owner, but they’re also paying more than you might expect, given the size of the business. In some cases, we’re hearing that these are the top business expense for a small business.

The 2nd highest expense that they have after labor, the swipe fees are the difference between being able to provide health benefits for your workers or not. So this is a significant amount of money as a small business owner. And that’s one of the reasons why I think we are seeing the bipartisan support for the Credit Card Competition Act.

BROOKS: And Sara, let me come back to you and ask you about that. If the credit card competition act of 2023 passed and something was done about these swipe fees, would you expect to see prices come down? In other words, would the consumer necessarily benefit from this or would merchants just pocket that extra money and be a lot happier in terms of their bottom line?

RATHNER: All of the above, honestly.


RATHNER: Because there’s nothing in the bill that requires merchants to reduce pricing. And merchants can make that choice. There might be other ways that merchants use the money to reinvest in their business that would benefit consumers. Ultimately improving inventory, hiring new staff or paying staff more, providing benefits for staff that they weren’t able to provide previously.

So making themselves a more competitive place to work. They might also say, Open a second or third location of their business with that additional money. So there are other ways consumers could have an improved shopping experience at merchants. But again, there’s no requirement to do this with the extra money.

They could just earn more revenue and keep that to themselves. And there are other factors that affect pricing, too. Beyond this. Like supply and all sorts of issues with getting inventory to the shelves. And so it’s not a one for one thing necessarily. It is a lot more complicated than that.

BROOKS: Morgan Harper, what’s your view on that? Who’s going to benefit from this, if this bill in Congress actually passes?

HARPER: What’s interesting in this discussion too, is we do have an example of an industry in the debit card market that went through similar changes over a decade ago with the Durbin Amendment.

And distinct markets, but pretty similar, and we have found that when the Durbin Amendment limited how high swipe fees could be, merchants, for the most part, those that … were processing a lot of debit card transactions, did pass those savings onto consumers in the form of lower prices of over 50%.

From some estimates. But other estimates say as much as 70% was passed along to consumers for the merchants that, again, were processing a lot of those debit card transactions. And the other way in which consumers could potentially benefit here is once you have more competition in the credit card issuing space that are able to be able to make enough money, because we also have the largest issuers.

The bill only applies to those that are earning over $100 billion or have $100 billion in assets. But there’s lots of other banks out there that would want to do more, to do more business in the credit card space. That once you have more competition in this area, then they are going to start competing on things like lower interest rates, potentially, or lower fees that consumers are charged.

And especially when we’re in this environment where we have record levels of consumer credit card debt. That seems like something that needs to be a top consideration in how we can bring those costs down for consumers.

BROOKS: So you mentioned that 2010 effort. I think you’re referring to the Durbin Amendment.

That was Senator Dick Durbin who passed that regulation around debit cards. And Sara, coming back to you, tell us about the sort of future of the bill that he’s sponsoring now in Congress. What does that look like? Where does it stand in terms of moving forward on a legislative calendar?

RATHNER: It’s still hanging out there, last I’ve checked. Yeah, like I said, a lot of this is speculative, including when any of this might actually either come to fruition or not. And we’re in this holding pattern. And so we’re using this time to figure out what this might mean.

But otherwise, consumers will not really notice any change yet. Whether or not the bill passes in the future, we’ll see.

BROOKS: Here’s some opposition, at least a voice on that opposition in May of 2022, Bill Sheedy, the senior advisor to chairman and CEO at Visa Inc. testified at a Senate Judiciary Committee hearing about credit card swipe fees.

And Sheedy argued that if Congress seeks to lower swipe fees by creating more competition in the credit card industry, consumers will suffer.

BILL SHEEDY: Payments will continue to evolve through new payment uses, new business models, new frictionless commerce. However, regulatory interventions focusing exclusively on card networks could shift consumer spending away from networks like Visa and more expensive payment methods with more risk, less reliability and fewer protections and security.

BROOKS: That was Bill Sheedy. Morgan Harper, what’s your response to that? He’s arguing that it could shift payments toward more risk, less reliability, fewer protections and security.

HARPER: Yeah, and again, the data just doesn’t bear that out.

We actually see in the alternative networks that are out there, and there are a few that would be able to step up and be more competitive here. Star Network, PULSE Network, these might be names that are familiar to people. That they actually have, and this is recent research from the Fed in October of just this past year, that they have one fifth the rate of fraud that we see on Visa and MasterCard. And so this argument that somehow, they’re doing so much to keep our money safer, and they have better security mechanisms is just not true.

And the other thing that I would point out, getting back to one of our earlier discussions. Is we have the comparison of the Durbin Amendment and what happened in the debit card market, but we also have what has happened in other jurisdictions like Europe, for example, where in Australia, where the credit card market was regulated, and we still see rewards and we see costs going down for consumers and actually increase credit card usage overall.

BROOKS: Interesting. Morgan Harper, Sarah Rathner. Stand by. We’re going to take a short break. We’re talking about an effort in Congress to cut so called swipe fees that credit card companies charge merchants for processing payments. But if that happens, we’re trying to understand what happens to rewards programs.

Will they suffer? So who wins? Who loses in all this? We’re going to unpack this a little more when we return after this break.

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