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Credit Card Fee Legislation May Impact Reward Checking Accounts


Both reward checking accounts and credit card rewards may be affected if new legislation that's being considered in Congress becomes law. The legislation that is currently being discussed is H.R. 2382: Credit Card Interchange Fees Act of 2009. Banks and credit unions are fighting this legislation. Dan Mica, the president of the Credit Union National Association, is vocal against this legislation:
Credit unions use interchange revenue to finance card programs and to ensure that their members have access to the same services provided by other, much larger financial institutions - and typically more affordable. If interchange revenue were reduced or eliminated, credit unions would be forced into the impossible decision of raising fees for our members - or eliminating our card programs altogether.

This BusinessWeek article has a review with opinions of this legislation from merchants' point of view. In the article it was noted that debit card transactions are also expensive for merchants. Here's an excerpt:
We discount 3% for cash sales to try to recover the cost on credit cards. The problem we’ve run into now is more customers use debit cards than cash. Debit cards are considered a 'cash transaction' so we really get hit hard on those charges. We are debating now whether to consider not giving a discount on a debit card. That would antagonize the customers though, so we’re caught in a catch 22.

I wonder how much reward checking accounts have increased the use of debit cards. Before I signed up for a reward checking account, I always just used credit cards.

I have more discussion on interchange fees and reward checking accounts in this July post.

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Anonymous   |     |   Comment #1
On 09/29/09 I received notice from Discover Card regarding my "Open Road" Cashback Bonus Program. Since 2002 I was receiving 5% cashback on gasoline and automotive service purchases (up to $100 per month, 2% over $100).
Beginning January, 2010, the cashback rate decreases to 2% (up to $250 per month), but will also include purchases at restaurants.

A couple of days ago I received a "term change" notice for my regular Discover Card. There was no mention of changes to its cashback program, just interest rate, APR, etc. changes.
Anonymous   |     |   Comment #2
I never used my (bank) debit card, but since I got Rewards Checking debit cards, I only use cash after I've hit my quota of debit card uses for the month.
Anonymous   |     |   Comment #3
It seems to me that everyone wants the government to “bail” them out in one form or another. It is true that businesses get hit with fees for accepting credit and debit cards, but a wise business owner would include these costs into the purchase price. Why are businesses taking a shot at the credit card industry when they voluntarily agreed to accept them? (The last time that I looked, having to accept a credit card was not law.) What will be next…surcharges for their increased utility and phone bills? I don’t know about the other readers, but my utilities keep going up in price. Should business owners petition the government to stop their utility company from raising their rates?

We seem to have become a country of whiners. Nobody likes paying higher prices for anything and everyone would like a bigger paycheck. This is simply a fact of life.

Rather than have more government intervention into the private sector of our economy, let the merchants decide what form of payments they are willing to accept. After all, does one really believe that the government is more capable of managing money than the private industry? If so, take a closer look at Social Security and Medicare. Whenever the government gets involved in anything, ultimately it’s the general public that gets hit with the bill. (Who do you think is going to pay for all of the bail outs we have had in these last few years? Yep, you’re right, it’s us.) Free markets, not more government intervention, seems the best route to go to me.
Tuphat   |     |   Comment #4
To combat the underground economy, the government should encourage the use of credit cards over cash. I doubt seriously if most mom-and-pop stores report all their cash sales to the IRS. Merchant card reporting at least helps toward the goal of everyone paying their fair share of taxes.
Anonymous   |     |   Comment #5
I received the same Discover Card notice about the decrease from 5% to 2% cashback for the open road card. I don't think I'll be using the card after 2010 starts since I have another credit card the gets 2% cashback on everything.

The merchants should be willing to pay some fees for credit card and debit card transactions becuase it should be thought of as insurance. Visa/Mastercard and the banks assume a lot of the risk for transactions. Merchants get immediate access to funds for credit cards, and don't have to worry about checks coming back or losing/getting stolen cash before depositing it. Hence, merchant should think of these fees as insurance of payment for items/services and should include these fees in their prices.
AtHome Dad
AtHome Dad   |     |   Comment #6
When I use a "cash back" credit card, I consider my purchase to be on sale by the rebate amount (1.5 to 5%). Since adding a "rewards checking debit" I consider this to be another form of "sale" purchasing. I know the fees are high, and many merchants limit the amount you can swipe (charge or debit) and some don't accept them at all. Some merchants surely raise prices to offset the fee, thus negating my "sale/rebate".

Given my current balances and uses, I make about as much on my credit card cash back, as I do on my reward checking balance, but the potential is far greater on the reward checking account. In the past (with a higher balance) I've earned the amount equal to my purchases for the month!

This meddling is indeed bad news. I'm a fan of financial regulation, but we seem to be in a state of regulating the little guy to the benefit of the big ones. Too big to fail needs to be revised: Too big, then fail!
Anonymous   |     |   Comment #7
To AtHome Dad, you are correct, but the bureaucrats in Congress could not give a **** thing about you or anyone else but themselves.
They couldn't care less about reward accounts or small merchants accepting the debit cards, it is all about selfish political prestige.
Anonymous   |     |   Comment #8
Well, how many of us would take a 2.5% cash discount for most purcahses ? I know I would.

I have gas station owners mad at me for doing very small transactions repeatedly every month.

I buy gas with Penfed, Groceries with penfed except this quarter when discover gives me 5%.

No easy answer but lets be honest, those of us who make money from banks are subsized by those who LOSE a lot from the banks.

Something has to give somewhere.

And did at Westbank which is going from $50k to $30k next month.

I expect similar deals ahead.

Its all a matter of how many hoops we are willing to jump through for a few extra bucks.
ctgottapee   |     |   Comment #9
actually the banks assume little risk. visa will charge back a fraudulent charge in a heartbeat to any merchant.

cards offered two things to merchants:
1. they had an outside vendor verify purchasing ability, ie the buyer could afford to charge an amount, whereas a check prior could be written for any amount without knowing if the writer had the actual funds. it also offered a degree of float, whereas in the past a check $10 overdrawn would come back with no money and possible fees to the merchant, and now the merchant still gets his money and the credit card co hassles the customer for the money.

2. they gave consumers the ability to buy far more than they could if they only use cash or cash backed checks. most consumer sux at financial management and will overspend/impulse buy with a credit card, and merchants enjoy the sales profits. this is why merchants were ok with paying the credit card fees; it was a kickback for higher sales and having an outside firm managing all the account loaning (ie you can eliminate the layaway department and save costs)

merchants could also use some data grabbing and tracking related to frequent card swipes as well.

the gas stations don't like cards because they're selling gas at near cost in many cases and with card charges they may not even break even unless you buy an overpriced soda or cigs. they could offer cash discounts like some have and sitll do, but that can put strains on physical labor and employees are not cheap either. most people won't hassle for a 2% incentive on their small gas transaction, but that 2% adds up when you take it against the total book of a gas station's business.

what is really needed is a third player, maybe someone will finally break through with cell phone payments.

RE:> "The merchants should be willing to pay some fees for credit card and debit card transactions becuase it should be thought of as insurance. Visa/Mastercard and the banks assume a lot of the risk..."

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