Fed Paper Says Cash-Users Subsidize Credit Card Rewards

July 29, 2010, Written By Lynn Oldshue
Fed Paper Says Cash-Users Subsidize Credit Card Rewards

A new paper from the Federal Reserve Bank of Boston entitled “Who Wins and Who Loses from Credit Card Payments?” says that “on average each cash-using household (debit, cash, prepaid card, check) pays $151 to each credit card-using household every year and each card-using household receives $1,482 from cash users every year.”

The paper says that each low-income household pays $9 to each high-income household. Each high-income household receives $32 from each low-income household.

The paper makes several suggestions to reduce the transfer:
*Cost-based pricing–Allow merchants to charge different prices according to the method of payment.

*Redistribution–Use tax policies to re-distribute money from high-income households according to credit card use and receipt of rewards.

*Full disclosure–Merchants, banks and credit card companies should full disclose fees, costs, and price mark-ups. This may help consumers make “optimal payment choices.”

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The information contained within this article was accurate as of July 29, 2010. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.

About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.
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