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April 20, 2022
The first rewards credit card was introduced by American Airlines in 1934 to help it sell tickets. Ninety years later, merchants accepting credit cards and issuing co-branded rewards cards continue to create value for consumers and businesses.
With Durbin Amendment debit card interchange price controls shuttering debit card rewards programs, extending this government intervention to credit cards would harm consumers and merchants alike.
Merchants benefit from electronic transactions by accessing a global customer base, not limiting customers to cash in hand, and allowing customers to use their preferred payment method. As a result, merchants that accept credit cards gain more than 9 percent in transaction value, with rewards cards further accelerating economic activity.
Meanwhile, rewards programs benefit customers at all income levels. Among households earning less than $20,000 per year, 82 percent own a rewards card, and 90 percent of their spending dollars are charged to these cards.
Nearly three in four rewards cardholders redeemed their benefits within the past year, with 56% of cardholders reporting that their rewards card became even more important to them during the COVID-19 pandemic.
And issuers continue designing programs that offer more direct financial benefits to consumers. For example, Aspiration offers a card with rewards based on a user’s carbon footprint. Quontic Bank allows cardholders to earn Bitcoin rewards.
While credit card rewards are a critical component of the consumer credit market, extending Durbin Amendment interventions to the credit card market would put these benefits at risk.
The Durbin Amendment to the Dodd-Frank Act established fee and routing restrictions on debit cards that transferred $12 billion to large retail merchants without producing any cost savings for consumers. In the end, the government intervention in the payments market led to the elimination of debit rewards for cardholders due to the negative financial impact of interchange fee caps—ending a valuable benefit for U.S. consumers.
Credit card interchange regulation would have a direct, negative effect on consumers—and the negative economic spillover would harm many merchants as well. Government control over payment card policies would only further restrict access to card rewards while limiting the availability of credit to consumers and potentially forcing small issuers to exit the credit card business altogether.
In the final analysis, this kind of misguided regulatory intervention doesn’t make sense for consumers, card issuers, merchants, and the broader economy.