EPC Debunks NYT Video, Setting the Record Straight on the Universal Benefits of Credit Card Rewards for Merchants & Consumers
WASHINGTON DC – Today, the Electronic Payments Coalition (EPC) debunked numerous inaccurate claims made in a New York Times opinion video.
Americans of all income levels benefit from credit card rewards programs. In addition to rewards, EPC’s response warns against the consequences proposed credit card routing mandates would have on consumers’ data security and access to credit.
The full response from EPC Executive Chairman Richard Hunt can be found below.
EPC Response to November 21st New York Times Opinion Video
By Richard Hunt
EPC Executive Chairman
A video op-ed in the New York Times again repeated the same deceptive, erroneous claims about credit card rewards. Not only have these claims been soundly debunked, it is also well documented that laws placing new mandates on credit card routing would actually hurt low-income families.
According to a Morning Consult poll[1] of registered voters, about half said they are more interested in rewards cards – especially cash back rewards cards – as a way to combat inflation and three-quarters of low-income cardholders reported “often” using cash back programs. And, more than 90 percent of low-income cardholders say those cash back rewards are “valuable” to their everyday life.
The CFPB[2] also found subprime and deep subprime credit card users putting more than half of their credit purchases on rewards cards, with cash-back rewards being among the most popular rewards overall.
But, this debate goes well beyond rewards programs – something the New York Times omitted. New proposed laws on credit card routing would have consequences for consumers’ data security and their access to credit, all while failing to save them or small businesses any money at all.
Every time a consumer makes a purchase using their credit card, they have peace of mind knowing that they are protected from fraud. That’s because merchants and credit card companies make investments – funded by the interchange collected on each purchase – in the data security of their networks. Since routing mandates were implemented on debit cards, debit fraud is up 124 percent[3]. There is no reason to believe the legislation before Congress would have a different outcome for your credit card.
The New York Times referenced the price caps Congress and the Federal Reserve placed on debit card transactions, but what they didn’t mention were all the negative consequences and broken promises made by corporate mega-stores about these new mandates.
Just like with debit cards, corporate mega-stores like Target and Walmart, as well as supporters of these Congressional mandates, promised back in 2010 that these caps would reduce costs. The Richmond Fed[4], however, found just the opposite, with about 98 percent of businesses either raising costs or keeping them the same after the debit caps were enacted. Worse still, a Progressive Policy Institute report[5] referenced a study showing these price caps led to higher checking account fees, the elimination of free checking, and an increase in the number of unbanked Americans.
PPI also addressed the myth of lower and middle income consumers subsidizing more affluent shoppers head on. As seen from the debit card cap, no savings were passed on to consumers and these caps decreased the benefits of rewards cards for all cardholders, including the three-quarters with households incomes less than $50,000.
Paying with cash, as the New York Times suggested, is actually one of the most costly ways for consumers to pay which is why you see more and more merchants going cashless. A study from a retail consulting firm found[6] the cost of accepting cash averages about nine percent and could be as high as 15 for some businesses – that’s four to seven times what merchants pay for fast, secure, and convenient credit card acceptance. This does not even account for the increase in sales merchants see from credit cards, which is more than double[7] that of debit card purchases.
It is true interchange in Europe is less than it is in America. But so is access to credit. In the EU, where laws capped interchange, significantly less Europeans (between 39-57 percent) have access to credit cards as compared to about four in five Americans and the fees those Europeans pay for credit cards is also significantly higher – more than double in France[8] compared to the U.S.
Now, let’s talk about the smallest mom-and-pop shops. Many of these businesses use fintechs which charge the exact same rate for debit and credit card purchases – so while the Durbin cap on debit cards didn’t reduce costs for consumers, the savings never even made it to the smallest businesses its supporters were allegedly trying to help. The real benefactors were the Walmarts and Targets of the world and the fintechs processing payments. Or to put it another way, “caps may generate a real ‘reverse Robin Hood’ effect, with the shareholders of big-box retailers benefiting at the expense of lower-income consumers,” as the International Center for Law & Economics[9] put it.
So, while the New York Times might shame its readers for acting in their own best interest, the facts clearly show credit cards offer businesses a valuable service and consumers easy, hassle-free purchasing power. Laws trying to interfere with this complex payment system will put all of that in jeopardy – and hurt consumers – across all income levels – in the process.
Richard Hunt is the Executive Chairman of the Electronic Payments Coalition
[2] https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2021.pdf
[3] https://www.federalreserve.gov/paymentsystems/files/debitfees_costs_2021.pdf
[5] https://www.progressivepolicy.org/publication/no-change-needed-durbin-amendment/
[7] https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm
[8] https://www.argusadvisoryresearch.com/reports/country-reports/europe/france.html