| July 26, 2010

Rich getting richer on credit card fees

The incentives that entice the rich to take on additional credit card debt, like reward programs, are being paid by a significant amount of lower and middle class Americans at an escalating number, a study has found.

According to a Reuters report, which cited their findings from a study done by the Federal Reserve Bank of Boston, low-income consumers are footing the bill for their richer counterparts’ credit card purchases. The study found that about 83 percent of the revenues banks receive from transaction fees are actually paid by those who pay cash, and a disproportionately high percentage of that is paid by Americans with low incomes. In turn, those cash payers are subsequently paying for credit card users’ reward programs.

The report said that low income consumers are far less likely to have a line of credit, but are paying the same price for products from vendors, who mark everything up to cover any possible transaction fees. The researchers on the project have argued that card companies should reduce reward programs and merchant fees to “increase consumer welfare.”

The Federal Reserve Board recently introduced new rules that govern credit card swipe fees, which could help to lower prices for consumers.

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