Tuesday, February 13, 2007

Daily Kos: Credit Cards: The Biggest Reverse Robin Hood Scheme You've Never heard Of

"Now, if you're thinking ahead you may have already asked: Well, why don't they just offer a discount if you're using cash? Good point! I'm glad you asked. And I'll tell you why not: because in the thousand-plus page agreements that merchants have to sign before they can accept Visa or Mastercard. Also in that document: it's highly highly against the rules for merchants to tell customers about the interchange fee they pay."

Now, here's another important factoid: As I mentioned, those interchange fees are much higher than they need to be, and that's because the banks that control the Visa/MC use the money generated from them to pay for the rewards cards you can only get if you qualify, and you have to be worth something already to qualify.
So think about it: A person living on a fixed income, who uses cash to pay for most items, pays a small percentage of that interchange fee every time he or she buys everyday goods at any place that takes credit cards. The banks then take those fees and give them to people who certainly don't need it, but like it when their bank gives them free stuff. And who doesn't like free stuff?

1 comment:

  1. I do some consulting with www.unfaircreditfees.com and am glad that word is getting out about these interchange fees. Were the credit card companies to completely drop interchange fees, they would still make a very handsome profit. And you're exactly right in noting that the rewards we all know and love are subsidized by those people who, due either to choice or circumstance, choose to pay by cash or credit. It truly is a reverse Robin Hood effect.