Fed Paper Says Cash-Users Subsidize Credit Card Rewards

July 29, 2010, Written By Lynn Oldshue

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.