The same politicians who mostly killed free checking and debit card rewards programs through government price controls are setting their sights on credit cards – and that means miles, cash back, and other rewards are now in jeopardy.
That’s a potential political earthquake, because a recent study found that 84 percent of all credit cards are rewards cards, and 70 percent of cardholders who make less than $20,000 a year have rewards cards. Many small businesses also rely on rewards cards – especially cash-back cards.
Those individuals and small businesses need to engage quickly to stop efforts underway by Senator Dick Durbin (D-IL) to build support from his colleagues to extend his 2010 price-control and network-routing regulations on debit cards to credit cards.
The debit card experience should be seen as a cautionary tale.
Rushed to the Senate floor with no committee consideration as part of the Dodd-Frank Act, the Durbin Amendment placed price caps and network routing mandates on debit card transactions, benefiting the biggest retailers but disrupting the business models of banks, credit unions, and stores selling smaller-ticket items. When banks and credit unions were squeezed, they had to cut expenses, and that meant cutting free-checking accounts to customers with lower balances and ending nearly all debit rewards programs.
To garner the support of a handful of Republicans in 2010, Senator Durbin pitched his regulations as a boon to both retailers and to consumers. This is what actually happened:
77 percent of retailers kept prices the same and 21 percent actually increased prices because of the Durbin regulations, per the Richmond Federal Reserve.
Free checking dropped from 60 percent of all accounts to only 20 percent, according to a University of Pennsylvania study.
The Durbin Amendment cost the average low-income American about $160 per year, per a Boston University study.