This Thanksgiving, Americans Will Be Thankful for Their Credit Card Rewards

This Thanksgiving, Americans will redeem their credit card rewards in various ways. Those travelling to see their families, will likely be cashing in miles to pay for their airfare. With Thanksgiving costs on the rise, it is likely that they will use benefits like cash back to offset other expenses. However, with the introduction of the Credit Card Competition Act (CCCA) led by Senator Dick Durbin (D-Ill.), Americans may be stripped of this valuable lifeline. The bill, which is up for a hearing on November 19^th , would heavily restrict or prohibit credit card companies from offering rewards programs. This proposal is not only misguided and based on specious factual assumptions, but could deal a heavy blow to the American economy.

Proponents of the CCCA claim that credit card rewards are causing a “reverse Robin Hood” effect. They claim that low-income households have lower access to rewards credit cards relative to high-income households while still bearing the costs of interchange fees through higher prices at the counter. They also claim that these higher prices mean cash and debit users are also subsidizing high-earner’s rewards programs. Additionally, they also claim that low-income households are more likely to be charged a higher interest rate, so the cost of interest will offset the benefits of rewards programs.

These claims are false. A recent study by the Electric Payments Coalition (EPC) revealed that low, middle, and high-income households all earn and redeem credit card rewards at similar rates. Additionally, rewards card offerings for lower-income households have increased to a point where low-income households are equally likely as higher-income households to have a rewards card in their wallets. The report also noted that there is little correlation between risk score and income levels, which means that lower-income households do not necessarily face higher interest rates. The study also tackled claims that rewards cards lead to higher overall prices at the counter. In reality, merchants oftentimes benefit from accepting rewards cards, making the need to compensate for interchange fees unnecessary.

Ultimately, the proposal would fail to obtain its stated objective. As past experiences have shown, removing card rewards has little to no effect in reducing prices, despite the removal or limitation on interchange fees. The first Durbin amendment, which effectively banned debit card rewards programs, had virtually no effect on retail prices. Instead of correcting course, the senator has decided to double down and extend this failed policy to credit cards.

A restriction on these popular rewards could be incredibly damaging for the American economy, especially as consumers are increasingly relying on rewards to offset the impacts of recent surges in inflation. According to the EPC study, more than $38 billion in unredeemed rewards could be potentially lost if these programs were to be shut down. This would essentially pull the rug out from under millions of Americans who are relying in these rewards as a safety net for unexpected purchases, such as Thanksgiving dinner or a Black Friday purchase.

If the CCCA were to pass, the millions of Americans hosting Thanksgiving dinners or takin advantage of Black Friday sales might think twice before doing so. Policymakers across the nation should think twice before setting the American economy up for failure by passing such a misguided policy.