Wharton Sinkler: Credit card rewards are nice, but low prices are better

To The Daily Sun,

I’d like to provide a counterpoint to Sharon Maxfield’s letter about the Credit Card Competition Act. This bipartisan federal legislation would introduce competition to the credit card business. This would lower “swipe fees” paid by merchants. These fees are what cover credit card rewards.

My wife used to run a small business. She would routinely pay swipe fees of 3.5% of the price on her sales. This was about 7% of her profit on goods sold. That’s what credit cards can take, just for completing a transaction, billions of which can run automatically every day in data centers. By contrast, my wife did payroll, paid rent, stocked inventory, cleaned the store, filed monthly financials, and hoped something was left for her.

Most retail payments are made with plastic today, so swipe fees apply to a large share of our economy, and are wildly lucrative for banks. A fraction of that goes back to consumers in rewards.

To remain profitable, retailers increase their sale prices to cover credit card fees. The situation is hardest on small independent businesses, who don’t have the clout to negotiate lower fees.

Consumers have a choice: They can be nice to their local merchant and use cash or a debit card (which have lower fees), but they are leaving money on the table. Or they can get a rewards card and claim their share of the inflated price, while accepting that they’re contributing to higher prices for everyone.

The choice we need but don’t currently have is to not pay an inflated price by putting a stop to ridiculously high credit card fees. That would lower the cut that banks take from our commerce. That’s something I’d support, and it’s what the Credit Card Competition Act aims to achieve.

Wharton Sinkler

Sandwich