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In case you missed it, late last week a settlement was reached between Visa, MasterCard, etc., and merchants who alleged that those major banks had worked together to price-fix the fees that are charged to the merchants every time someone uses a credit card to make a purchase. I won’t even pretend to be an expert on all the nitty-gritty of this lawsuit or settlement, but I do want to make sure you at least have a high-level overview of this settlement since rewards credit cards are such a major component of the miles and points world. I think this settlement is something to be aware of, but not overly alarmed about. Here are some bullet points that brought me to that conclusion:
- Part of the settlement includes a repeal of a rule that was in place that stated that if a retailer accepted Visa or MasterCard credit cards, they could not charge customers a surcharge for using the credit card. Now that the rule is no longer in place, the fear is that now retailers will pass on the 1.5 – 3% “swipe fee” to customers. This would mean that the value of using rewards credit cards for the sole purpose of racking up miles and points would be dramatically reduced or erased.
- However, retailers could already offer a “cash discount” for those not paying with a credit card. In my area, there is exactly one store that I know of that does this – Spec’s Wine, Spirits, and Finer Foods. Everywhere else I shop has cash and credit at the same price, even though they could offer a cash discount. I know in some states, like California, it is already common place for gas stations to offer “cash discounts”, so it certainly does happen – it just isn’t exactly pervasive.
- My understanding is that ten states have laws on the books that prevent retailers from charging more for people who use credit cards, and those laws aren’t impacted by this settlement. My own state, Texas, is thankfully on that list. Some other highly populated states like New York, Florida, and California are also on that list. The full list is: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas.
- Since ten very populated states have laws preventing a “credit card surcharge”, then it just seems unlikely that national companies would really charge those fees to the other states. If they did, I bet those states would get on the ball and pass similar laws to the one that the other states have already enacted. Of course, that doesn’t prevent retailers from offering “cash discounts”, but they could have already been doing that, and yet most do not.
- I wouldn’t be surprised to see some non-chain or local stores, doctors offices, and other small businesses charging a surcharge to use a credit card in the states that don’t have laws preventing that type of charge.
Even if a “rewards credit card doomsday” occurs and there is now a surcharge to use rewards credit cards for virtually all purchases, that still wouldn’t necessarily mean the end to earning miles and points using credit cards. When the credit card is paying out in miles or points that are worth more than the transaction fee that might be charged (which could happen – especially with category bonuses), it would still make sense to use cards for those purchases. Additionally, working on meeting minimum spending requirements to get sign-up bonuses would still be a lucrative strategy since the sign-up bonuses are so large. There are also still times that many of us would want to charge something in order to get the consumer protections that often come with using credit cards, or because we don’t have the cash on hand to pay off the purchase immediately.
I have a hard time envisioning a return to a “cash society”. Perhaps we will see a resurgence in debit card use, which stinks for us since rewards debit cards have taken a huge hit in the last year or so since the “Durbin Amendment” on the Dodd-Frank Act cut the fees that the banks were paid from merchants when customers paid with debit cards.
My takeaway from this is to certainly pay attention and see what happens as a result of this settlement, however I am not overly concerned at this point. Again, I am certainly not an expert in picking apart settlements, lawsuits, etc., but I think knowing some basics is helpful. As always, I would love to know what you think!