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Will New Rules Make Credit Cards Less Rewarding?

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The recent settlement between the world’s two largest debit and credit card payment processors and a number of retail groups gave experts cause for concern, and many expressed worries about how the decision might alter rewards programs.

The settlement, which will lead Visa and MasterCard to pay a combined $6.6 billion to retail groups and reduce interchange fees on credit card purchases for several months, also prompted concerns that lenders might recoup some of the resulting losses by altering the terms of their rewards programs, according to a report from the Wall Street Journal. However, many analysts believe that there is little reason for concern over that specific measure.

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Free Credit Check & MonitoringPerhaps most important is that it’s expected that surcharges will be rare, the report said. Apart from already having been outlawed in 10 states — including heavily populated ones like California, New York, Texas and Massachusetts — and similar legislation hoped for in several more, merchants nationwide generally seem unlikely to impose the new fees on their customers. Similar laws have been in place in Australia since 2003, but as of 2010 — the most recent year for which data was available — only 5 percent of all credit card transactions in that nation involved these surcharges, and just 30 percent of merchants imposed them. When faced with them, customers either chose to pay with cash or debit, or took their business elsewhere.

And that latter point is another concern for lenders, the report said. Despite many rewards cardholders not carrying a balance from one month to the next, they still generate significant revenues for lenders and processors because borrowers with these accounts tend to use them more often. Typical spending on these cards over the course of the year can equal tens of thousands of dollars, and with swipe fees of around 3 percent on many such cards, that remains a boon to processors even if they’re not generating other revenues.

Further, if issuers really wanted to earn more from consumers’ rewards account use, they would likely just boost interest rates and annual fees, rather than reduce the value of these programs.

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Many rewards borrowers spend more on these accounts because they view the perks they earn as “free money,” even if users typically pay for them through annual fees and higher interest rates.

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