Have you set up the perfect plan for maximizing credit card rewards on every purchase you make?
And money expert Clark Howard says that’s a GOOD thing. Say what!?!
Though Clark loves to use his credit cards to rack up rewards, he says Visa and Mastercard have gained a cartel-like hold on the marketplace in America. The result has been some of the world’s highest credit card processing fees, which is bad for both U.S. merchants and consumers alike.
During a recent episode of The Clark Howard Podcast, Clark explained why he feels this way and discussed the newest developments that could impact the future of the credit card rewards system.
Bipartisan Legislation Could Soon Alter Credit Card Rewards Programs
So what pending legislation is Clark talking about, exactly?
The Credit Card Competition Act of 2023 was introduced to the United States Senate in June 2023 as an attempt to loosen the grip that Visa and Mastercard have on the credit card processing market.
These two payment processing giants have locked in deals with some of the most prominent card issuing banks, like Citi and Chase, that force merchants into accepting their unfavorable terms for transaction processing on your purchases.
If the Act receives the necessary votes and is signed into law, it could have a significant impact on businesses and consumers alike.
“The banks and the credit card companies are going crazy over this,” Clark says. “Because it would force the ability for any merchant — if he or she wished — to use alternative processors for their payment system at their business.”
The Act is not proposing that the United States should eliminate credit card rewards programs.
But it would open competition for credit card transaction processing that could not only cost Visa and Mastercard business, but also force them to lower their asking price on things like interchange fees.
And since these fees often help fund the cash back or travel miles programs associated with credit cards, it stands to reason that issuers could roll back or eliminate their rewards programs.
As it stands, Visa and Mastercard charge U.S. merchants some of the highest processing fees in the world.
The U.S. has interchange fees that are more than double most European countries, according to data collected by Lending Tree. Also, these percentage-of-transaction charges usually are accompanied by a flat “per transaction” fee that makes the real costs even higher for U.S. merchants.
Why Clark Says This Is a Good Development for America
Simply put, Clark says payment processors Visa and Mastercard operate like a cartel in modern-day America.
Comparing them to oil-industry cartel OPEC, Clark says these mega corporations are clogging up market efficiency for payment processing. And, in turn, all of our businesses are paying more than necessary to take credit card payments at the point of sale.
“We consider ourselves to be a free market economy, a capitalist economy,” Clark says. “But one of the problems in the United States now is heavily-influential, political-contributing businesses and lobbying organizations destroy — in certain segments that benefit them — the free market function.”
The Act proposes changes that open up competition for credit card transaction processing.
Opening things back up to a free market may hurt our ability to earn credit card rewards, but Clark believes they’ll have a net positive impact on conducting business in the U.S.
“If the free market is allowed to work, you and I likely will no longer be able to get all our rewards,” Clark says. “Like me with my 2% cash back card and my travel mileage cards and all that stuff. Those will be devalued or go extinct. It’s true.
“My bias is always: Let the free market work. And so if I lose my rewards, I’m OK with that because it allowed the free market to function.”
So are credit card rewards programs really going away?
Probably not in the very near future. But if the Credit Card Competition Act of 2023 becomes law, there could be significant adjustments to them.
Those adjustments could result in a significant reduction in the value of some credit card rewards and the elimination of some card benefits altogether.
But it’s a tradeoff.
If those benefits diminish or disappear, the free-market effect should lower the cost of a credit card transaction for a merchant.
And, as a result, could put more money back in the pockets of business owners and customers alike when pricing models are adjusted for lower effective cost of goods sold.
What do you think? Are you rooting for change in the credit card processing world? Or do you prefer to rack up rewards in the current model? We’d love to hear your opinion in the Clark.com community.