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There's another aspect to those reward programs, and that's where the money actually comes from. They come from interchange fees paid directly by merchants, and indirectly by consumers. It's an issue I'm quite familiar with -- I work on behalf of the website UnfairCreditCardFees.com drawing attention to the consequences it has for both merchants and consumers.

One of the problems is that merchants are not allowed to break out the fee at the register, such as offering a cash discount or a credit surcharge (same difference, really). This means the cost of interchange gets built into all goods across a store. There are some exceptions where a store sells exclusively one type of good -- gas or liquor -- but this isn't an option for most retailers.

So everyone pays the interchange fee, even people who live on a fixed income. And yet, relatively few people can afford the rewards card. So you end up in a reverse-Robin Hood scenario. Bottom line, you're right -- the fees are too high. I wouldn't go so far as back to paper and checks, especially because so few stores accept them. I have a debit card, and it works fine without all the fees.

Thanks. That was a very thoughtful reply. I had totally forgotten about those fees so your comment was very welcome.

Eric

Eric, thanks. I should perhaps clarify one thing -- I was a little un-careful in my phrasing on the point about cash discounts/credit surcharges.

There are a lot of things the credit card agreements forbid merchants from doing -- telling customers about the fee, for one thing. And they also keep the thousands of pages of rules that govern that agreement secret as well. But I erred in saying that retailers "are not allowed" to offer a cash discount.

While there aren't rules specifically forbidding it, doing so would be cost-prohibitive, and is effectively impossible. For example, different cards have different interchange fees, so let's say you buy a six-pack of your favorite frostiest beverage at the store. Now the interchange fee charged to the merchant will depend on if you're using signature debit (pin number) or signing for it -- and it will depend again on what kind of card it is -- gold or platinum? That will carry a higher fee. So here you have multiple interchange points for the same item. Now, carry that across the tens of thousands of other items also on sale at this grocery store.

So, another aspect of these fees that frustrates merchants is that there is no simple way to account for them -- it's worth it to the banks, because they're the ones making the money. But it's too difficult for retailers to spend time figuring out what they would offer as a cash discount. And that's why the interchange prices get built into the price of all goods, for everyone, whether you use a card or stick to cash.

And I betcha the banks like it that way, too -- that way, the customer is none the wiser.

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