Your So-Called Rewards Cards Exposed – Again

October 4, 2010 by  
Filed under Debt and Credit

Many personal finance bloggers dedicate a lot of words (and affiliate links) discussing rewards credit cards. According to these writers and their eager-beaver reward-chasing readers, rewards credit cards are a gift to consumers from the benevolent card companies: Visa, MasterCard, and AmEx. In the past and again today, I am calling BS on this entire concept.

Earlier this year, I wrote a post on the real cost of credit cards. That post discussed the fees charged to merchants by the rewards card issuers. Of course, the merchants pass those fees on to us – all of us.

The rewards card fans sometimes acknowledge this but profess not to care because they (according to them) are “winning” i.e. beating the card companies at their own game.

I’m still calling BS on this assertion. It now appears that the government is on my side of the argument.

Yes credit card geniuses, today the Justice Department filed an antitrust suit against American Express. The basis of the suit is that AmEx places contractual restrictions on merchants that impairs their ability to offer discounts to consumers for using a different card.

Let’s translate that for the card addicts: American Express is using your rewards card in a way that keeps merchants from offering you discounts and lower prices.

Let me quote the Attorney General to reinforce the point:

Because American Express has refused to change its rules, consumers are being held hostage from receiving the expanded choices and lower prices that they deserve under our settlement. We cannot allow this to stand.

Visa and MasterCard have been doing this as well but they have already settled. That was quick. Do you think they know something you don’t about the anti-consumer effects of their own conduct?

The Wall Street Journal article I have linked below questions whether rewards card users would change their behavior even if offered a discount for using a different card or no card at all. I believe that some will (those who logically think through the entire issue) and others won’t (the short attention span thinkers).

Full disclosure: Mr. and Mrs. ToughMoneyLove use a rewards card. The card is a debit card. The reward is 3.3% interest paid on all checking deposits up to $25,000.

We are rewarded for the money we don’t spend. How about you?

U.S., AmEx in Antitrust Suit

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14 Responses to “Your So-Called Rewards Cards Exposed – Again”
  1. mdb says:

    Businesses can refuse to accept the cards, a few do. They don’t do it because people like the convenience, I know I do. Can’t wait to see how the government screws this up. I have to say I am disappointed in this post. I guess most everyone has some big government leanings.

    • MDB – I’m not sure you understand what is going on here. This is an anti-trust lawsuit over anti-competitive, anti-consumer behavior. The issue is not whether the merchants accept the card, its whether the merchants can be contractually restricted from offering discounts to encourage consumers to use a different card. AmEx hates that because its rewards cards are among the most expensive to merchants to accept and therefore for consumers to use. Non-rewards cards are convenient to use and can allow merchants to offer lower prices for using them. What’s wrong with that?

      • Rick Beagle says:

        The problem with that is that you have failed the purity litmus test that states that the “free market” should remain unregulated, and current laws should not be enforced.

        The market, so the saying goes, will correct itself. Insert reasonable comment about monopolies and lack of a “free market”, and these purists will often point out the obvious truth of their position by offering some quip from Saint Reagan about “being from the government and here to help” followed by much knowing laughter.

        Unfortunately, we live in polarizing times with extremists hogging the mic on both sides of the aisle (the Tea Party is the current noise of the month). The rubbish is so great it’s hard to find some reasonable middle ground without tripping over a some self proclaimed purist.

        For those that are History buffs, I say “Remember the Maine”, and point to the return of yellow journalism. It seems the sheep are not as immune/sophisticated as we once thought.

        Good article, and a good move by the DOJ. No new regulations, just enforcement of those that are already on the books.

        Rick Beagle

      • mdb says:

        Anti-consumer? Anti-competitive? Anti-trust?

        First, Anti-consumer. Are these the same consumer’s that use the cards and like the rewards? Are these the same customers of business that pay the increased prices. Consumers like the convenience these cards offer, credit card companies provide a service and the rewards offer differentiation of their products. Last of all, lets not forget no one, and I mean no one, is forced to use or accept the cards. You may not like them, but what gives you and the government the right to dictate your whims on all Americans.

        Anti-competitive, there are 4 major credit cards out there, many many many smaller and store cards – it is a very competitive market.

        Anti-trust – see anti-competitive.

        There are stores that offer cash discounts, rather than force everybody to adhere to your world view, you could choose to exercise your freedom to choose where and how you spend your money.

        Am-Ex has carved out a niche with business travelers, they know it, stores know it, and any business that has does a decent business with that group will pay fees. Has specialization caused your earnings to increase? Should you be allowed to charge more for your services than a day laborer? Any business or person that has a niche will use it.

        This all boils down to your dislike of credit cards, the rational for government intervention is non-existent.

        • Rick Beagle says:

          Don’t you just love it when people fail to read the reference article, but decide instead to parrot what they think they know as if it were the truth?

          The captains of finance do occasionally try to maximize their profits at the expense of consumers and the law.

          The rationale for government intervention was necessary and long overdue. If you had read any of the articles mentioned, did some research on the case, or case material, you would have reached the same conclusion.

          As distasteful as it may be to you, the government is bound by law to step in and enforce our laws. I know it’s been a while since you have seen good governance in action, but by and large, this was pretty well done. And contrary to your absurd position, it encourages even more competition for our dollars by keeping the fields of competition level and receptive to innovation.

          Rick Beagle

          • mdb says:

            so how is it anti-trust, anti-consumer or anti-competitive?

            it isn’t.

            You don’t like it, you agree with articles that share your dislike, and you expect people to agree with you.

            If there isn’t anti-trust violations, the government intervention is groundless. Regulatory action based on consumer protection, when the VAST, VAST, VAST majority of consumers, appreciate and like the cards is also ridiculous.

            I would not wish you peace, because you wish to use the force of the government to make me comply with your beliefs, and that is anything but peaceful.

          • Rick Beagle says:

            mdb says:
            October 7, 2010 at 12:06 pm
            “so how is it anti-trust, anti-consumer or anti-competitive?
            it isn’t.”

            And this is where your argument fails, because it is all three. In an effort to help you realize this

          • Rick Beagle says:


            I’m sorry about the incomplete post above. Feel free to crush it.


            Wow. I was going to write up a dissertation on how these credit card companies are indeed anti-trust, anti-consumer, and anti-competitive, but then realized that you are so far adrift in your beliefs that nothing, NOTHING, I could say would change your mind.

            So let me end my comment thusly, I do not want the cost of my every day items increased due to some back room mafia like deal between these credit card companies and merchants. Just because they give you a trip to Aruba every now and again, does not justify the rest of us having no choice but to pay (with our hard earned cash) to support your “rewards”.

            And before you spout something stupid, like “use cash” – I would remind you that we are in the electronic age, and such a comment is absurd. Honestly, do I really need to run to my electric company with cash to avoid having to pay for your stupid rewards?

            As for people enjoying it, I’m not. And if most people understood this little business tax that the big three have imposed, they would be pretty annoyed as well.

            Rick Beagle

          • mdb says:

            backroom mafia deal? please.

            It is all out in the open, everyone that cares, can know.

            You are free to shop at merchants that don’t accept cards or charge less.

            I know there aren’t many, because consumers demand that merchants accept the cards.

            You must have no respect for all the individual consumers out there.

  2. Ryan says:

    Simple question – what if you can do both? I understand fully the arguments against credit cards, how the fees drive up prices, etc. However, that’s the environment and set of rules that are in play in the United States today, and it won’t change tomorrow.

    For me, I use both methods – for small expenses, like a snack at the cafeteria, or a quick run to the grocery store, I use my rewards checking card, to get to the minimum uses to trigger the 3.45% interest on my balance. Then, for the larger purchases – car insurance, rental car, plane ticket – I use the card, getting 2-5% cash back – even more if you add in the deferred time between the charge and the payment from the rewards account.

  3. Evan says:

    Just because the DOJ makes a move and the other two companies settle does not mean AMEX is wrong. While I understand DOJ’s contentions it is just as easy to say that the company doesn’t have to accept AMEX cards and therefor isn’t bound by the contract.

    I am actually more curious as to why Discover wasn’t named? Do they not try to take part in this type of behavior?

    • Rick Beagle says:


      However, it seems unlikely that the DOJ is wrong when you add seven state AGs, several merchants, and at least one trade group to the list of people complaining about unfair practices. It is also fairly clear that the practice under scrutiny is by proportion a much larger profit source for AMEX than the other two. A quick google on the matter should verify that for you.

      From the WJ article:

      “Merchants, some of which have also privately sued the credit-card companies on the issue, viewed the settlement as a victory.

      “People are beginning to realize that the card companies have been engaging in egregious behavior for a long time,” said Mallory Duncan, general counsel for the National Retail Federation, a trade group.”

      As for Discovery, it looks like they are cooperating, and if any policy changes need to be made, they are willing to make them.

      Rick Beagle

  4. Rick Beagle says:

    “You must have no respect for all the individual consumers out there.”

    ROFL! You are either employed by a CC company, did not read the article, or just willfully stupid.

    Let me take a guess here just to amuse myself. I bet you think the Bush tax cuts should be made permanent? The government should keep their hands out of your pockets is your mantra I bet? What if for every million they collected they put a dollar toward a nice trip for you? Now would it be okay?

    LOL! I crack myself up…. Whew, that was funny. Yes, I know, I’m one of those left wing elitists who are blah blah blah….

    Honestly, my very last comment to you:
    Go buy a lottery ticket Gump, and start saving for those “rewards” like the rest of us. 😀

    Rick Beagle

  5. Jack Clark says:

    “AmEx hates that because its rewards cards are among the most expensive to merchants to accept and therefore for consumers to use.”

    Actually TML, AX is the most expensive.

    That’s why tons of smaller merchants do not accept it and accept only VS and MC. There is too high of a processing cost for them to accept AX or DS for that matter and that’s actually why a lot of smaller merchants nationwide have actually been dropping AX acceptance over the last ten years.

    If you are a large company like let’s say Marriott you don’t care about those costs as much because they annually negotiate their merchant rates with VS/MC/DS/AX and those rates are well below what the average 7-11, as an example, has to pay to process the same cards.

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