How Credit Card Companies Rig the Game to Skim 1-3% Off the Consumer Economy
There are two types of credit cards:
- Low fee, low points cards (0% to 1.5%)
- High fee, high points cards (1.5% to 3.5%)
Credit card companies like Visa and Mastercard each offer BOTH low fee cards and high fee cards. And they require that merchants accept the high fee cards if they accept the low fee cards.
The card companies also prohibit discounts for lower fee cards via their contract agreements.
In addition, the companies lobbied states to make card surcharges illegal and were successful in several of them: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, Maine and Texas.
Thus, merchants have no choice but to take on higher fees with all transactions involving high fee cards.
Consumers are losing money when they choose low fee, low points cards.
As a result, most of them choose the high fee, high points cards.
And while they can get a lot of benefits from the points, they always lose more money via the price increases that result from the interchange fees.
With all of these pieces in place, the credit card companies have constructed an ironclad system that ensures as high fees for them as possible.
And the only way to escape from the system that incentivizes higher and higher fees is for merchants to start offering discounts on lower fee cards and cash.
But the low competition due to the card oligopoly, plus state regulations, makes this almost impossible to do.
Checkmate merchants and consumers. Everything you purchase is now 1-3% more expensive than it needs to be.