Warning! Your credit card rewards are about to expire
A proposed law that would end credit card rewards may not pass, but the end is near. Here's why that's a good thing.
Are credit card rewards as good as dead?
Maybe. The Credit Card Competition Act of 2022, which promises to bring competition to credit card payment systems, could potentially wipe out the lucrative and highly addictive rewards ecosystem. But it has just a one percent chance of becoming law, according to GovTrack and Skopos Labs.
Still, the days of "free" miles are numbered.
It's about time. Credit card rewards are parasites that have attached themselves to the necks of consumers. The legislation in Congress represents the first of what will likely be repeated efforts to dismantle a monopolistic payment system that impairs consumer judgment and steals from the poor. I'll explain what you can do now to get ahead of this trend.
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Why credit card rewards are bad for us
Credit cards are ridiculously profitable. The industry earns $257 billion in revenue every year. That's about $780 for every man, woman and child in America, according to fellow Substack publisher Matt Stoller.
Credit cards issue about $20 billion in rewards every year. There's nothing wrong with being profitable, nor does anyone have a problem with rewarding loyalty.
But who is paying for these generous rewards? You are. Merchants pay a transaction fee of anywhere between 1.3 percent to 3.5 percent of each credit card transaction. Then they raise prices to cover those fees.
Some cardholders pay more than others. A study by the Boston Fed suggests the poor are at least partially subsidizing rewards for the rich. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $21, and the highest-income household ($150,000 or more annually) receives $750 every year.
And then there are credit card fees and sky-high interest rates, which are not always clearly disclosed when you apply for a card. A report by the New York Fed finds that low-income Americans have the highest credit card delinquency rates, which means they pay disproportionately higher interest rates and more late fees. Some of those fees cover the rewards the rest of us enjoy.
It's not just the poor who have to pay more, of course. Last month, credit card debt in the U.S. hit an all-time high of $930 billion. We're all under a pile of credit card debt. So if you have any interest on your credit cards, you're helping some points hacker fly to Dubai for "free" in first class.
Making matters worse: Credit cards are even less competitive than the domestic airline industry. Visa and Mastercard control 87 percent of the credit and debit card markets in the United States, which is troubling to merchants. On the bank side, it's only slightly better. The Big Six — JP Morgan Chase, Citibank, Bank of America, Capital One, Discover, and American Express — control about two-thirds of total balances. Less competition means less choice and higher prices.
So, to recap: You are paying dearly for your "free" miles. Credit cards take from the poor and reward the rich. We collectively owe billions on our cards. Credit card networks are a duopoly that the government wants to break up.
Are you with me so far?
Why credit card rewards are bad for you
Credit cards are complex, which makes it difficult to understand how they are affecting you and others. The link between an impoverished customer and your first-class ticket is not obvious. Neither is the link between the "free" miles and higher prices. But make no mistake, there is a link.
But why should you care? I mean, no one was holding a gun to these cardholders' heads when they signed up for the credit card, right? Wasn't it their choice to apply for a card and spend more than they have?
Perhaps. But what about you? In survey after survey, cardholders admit to spending more on their cards to reap the "free" points and miles. Some of you openly admitted it in the comments in Friday's Forum.
I watched a friend do it last weekend. We had a pricey lunch in Dubrovnik, Croatia, and he grabbed the bill. "I know you disapprove," he told me. "But I need to get my Delta miles."
Many readers admitted that they have a "points first" perspective when it comes to making purchases. In other words, how will my purchase maximize the collection of points? That often includes spending more, even if it means getting an inferior product. So you're feeding this billion-dollar rewards machine voluntarily, even when it's not in your best interests.
As a consumer advocate, I find that kind of behavior problematic. It's bad enough that these payment systems steal from the poor and give to the rich. But they also impair our judgment as consumers.
We can't continue down this road.
The end is near for credit card rewards
Maybe market forces will euthanize this unfair system, exterminating the parasites. Then again, maybe the Credit Card Competition Act of 2022 will pass. But even if it doesn't, change is coming. I'm certain of it. Regulators at the Consumer Financial Protection Bureau, under White House orders to scrutinize monopolies, will eventually take action.
From my point of view, it can't happen soon enough. The monopolistic credit card networks don't just influence how you spend money. They also control the news you read online.
It's almost impossible to find a travel site that doesn't hawk credit cards or reward programs and for which the publisher receives referral fees of hundreds of dollars per sign-up. Credit card companies often dictate what these publishers can and can't say online — which means the news you are getting is censored by an image-conscious credit card company.
But most publishers don't have to be reminded of who is funding them. They willingly refrain from criticizing these parasitic payment systems and leap to the industry's defense when the government tries to pass laws to help consumers.
How to prepare for the death of credit card rewards
Redeem your miles now
Your points and miles will not get any more valuable over time. If you see an opportunity to redeem your points for a flight or hotel, do it now.
Switch to a more sensible system
Ask your credit union or local bank about a low-interest rate credit card or debit card with reasonable fees. Or look into alternate payment systems, like crypto or bank transfers. It's already happening outside the U.S.
Kick the habit
Please stop buying things for the points! Instead, look for the best product at the lowest price.
Bottom line: We've reached a breaking point. We're deep in credit card debt. Our consumer judgment is hopelessly impaired. And the most vulnerable members of society suffer because we think we can get something for nothing.
This has to end. Credit card rewards must die. And the sooner, the better.
Your thoughts, please
I'm almost hesitant to open the comments, but here goes nothing! What do you think of credit card rewards? Has the time come for us to break our habit, or should the government stay out of our business? Please keep it civil and refrain from personal attacks and excessive snark.
About the art
Artist Dustin Elliott imagined credit card rewards going into the meat grinder — a fitting end to these parasitic payment systems. "The cards are getting their just rewards," he says.
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