Is Congress going to Kill Credit Card Rewards?

The debt crisis in America is the subject of much debate. There are a lot of myths and misinformation floating around out there, along with plenty of misleading headlines suggesting that we’re on the edge of some financial crisis. The reality is much less bleak. While there is, indeed, an increasing issue with debt in the United States, it’s not something that is going to bring the economy crumbling or cause other serious issues.

There is legislation going through congress, however, known as the Credit Card Competition Act of 2022, that aims to diversify the competition in the credit card network market. The idea is to close in on the Visa/Mastercard duopoly that has been making up the majority of the credit card market, offering more networks for people to choose from when it comes to using credit.

What the Act Entails

This act is seeking to reduce interchange fees associated with processing credit transactions. This will happen by requiring banks to offer the option of two different networks (or more) over which the transaction can be processed. This is designed to allow businesses to reduce their costs and then pass those savings along to the consumer. However, it may not work that easily.

The legislation proposes that the networks cannot be affiliated with one another nor can the two options only be Visa and Mastercard (80% of market share). It’s suggested that if merchants have more options regarding payment networks, they will select those with lower fees. This will result in lower prices for the consumer, according to supporters. Opponents of this legislation, however, say that it will leave less funding for credit card rewards programs, putting them in jeopardy.

What are Interchange Fees?

Most of the public isn’t aware of these fees, and yet they’re what plague businesses and usually have the biggest impact on their credit card processing methods. These are the fees that a merchant has to pay to use the credit card processing networks, and are what kept many small merchants from getting on board with credit for so long. Right now, fees range between one and three percent, on average, depending on the terms of the payment network.

Basically, it costs money to swipe a credit card. Right now, that money is either going to Visa, Mastercard, American Express, or Discover, based on the card that is used. The new bill would give merchants more choices in the matter, helping reduce fees and increase competition in the credit market.

What Would This Mean for Consumers?

If this bill passes and becomes legislation, the worry about the loss of credit card rewards programs is real. After all, with a reduction in fees means that networks won’t have as much money to spend on these programs in the first place. However, it’s more likely that programs will be scaled back or offer perks in another way. It’s possibly even likely that nothing will happen to rewards programs, at least not at first.

It’s important to stay up-to-date on this bill and others that could impact your finances. Know when it makes sense to use credit and when debit or cash might be a better option. You should also take a look at your wallet periodically and reevaluate the cards that you have and how well they’re working for you.

For now, consumers are encouraged to continue to maximize their credit card rewards programs and pay attention to future changes in legislation that may impact those programs. It’s unlikely that credit card rewards will completely disappear, but only time will tell.