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Credit Card Applications » News » Other » Rewards credit cards not popular anymore

Rewards credit cards not popular anymore

October 22, 2010
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With the Congress coming out with a number of financial reforms that led to the CARD Act coming into the play and the most recent settlement between the US Department of Justice and the financial majors like Visa and MasterCard, it is not fun anymore to shop using credit cards.

On Monday, an agreement was reached between Visa, MasterCard and the Justice Department of the United States that would enable merchants to divulge the truth behind shopping with credit cards to customers. Merchants can even offer discounts and incentives to people who shun credit cards and opt for other forms of payment that do not charge high fees. This is not good news for people who have rewards credit cards. People can accumulate points on these cards to claim their rewards only when they use them for making purchases; however, with the clamp down on purchases, the likelihood of the rewards cards losing importance is very high. A financial analyst, Michael Kon, working for Morning Star said that with these new rules and the agreement coming into effect, the concept of rewards credit cards got a bit more confusing.

For people who are still wondering about the hue and cry over the usage of credit cards for making purchases, here is some information. Every time consumers use credit cards to make purchases, the merchants will have to pay a fee of 1 percent to 3 percent of the transaction charges to the banks in the form of "swipe fees" also called as interchangeable fees. This charge, in turn, gets added to the customer's accounts and they will have to shell out more than required for the products and services they opt for. When it comes to rewards credit cards, the banks charge higher swipe fees and hence the customers using them pay higher than most of their other counterparts. A part of the amount they pay comes back to them years later in the form of small rewards. What consumers don't realize is that they are funding their own rewards.

Till date, merchants had no choice but to increase the prices of their commodities in order to make good for the fees they had to pay to the credit card lenders. However, that is not the case anymore. As per the new settlement that has been drawn up by the DOJ and the lenders like Visa and MasterCard, merchants can now reveal to customers the excess charge they will have to pay if they pay through credit cards. They can also give consumers an option of choosing another low fee card to avoid the extra charges.

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