Not too long ago, back-to-school shopping for families meant a new pair of shoes, some pencils, a few notebooks and a backpack. But now, with a growing list that can include calculators and laptops, parents are budgeted an average of $900 per child according to a recent Capital One study. This is on top of the already higher prices we see every time we go to the grocery store or out to dinner.
Many Americans don’t have that type of money on hand and need to pull from savings to be able to make these purchases. One of the most popular ways to help offset these costs is credit card rewards points or saved up cashback. More than 70% of Americans own a rewards card, and one of the most popular type of rewards across all income levels is cashback. Cashback offers cardholders the flexibility to spend their rewards however they need. It turns out that many people need that extra cash during the back-to-school season. A study of Electronic Payments Coalition’s members found back-to-school season is one of the times of year cashback rewards redemption peaks.
In spite of this, cashback rewards may become history thanks to credit card mandates proposed by Senator Dick Durbin of Illinois and Senator Roger Marshall of Kansas. Their bill will rewrite the way credit cards function and put a kibosh on rewards. The mandates put corporate mega-stores, not consumers, in charge of deciding how your credit card transactions are routed, effectively ending the current system.
The bill’s authors are not concerned about you losing rewards. Proponents of the bill try to argue that only the rich benefit from credit card rewards. It’s a convenient talking point, but not true. Americans of all incomes earn rewards at a similar rate and lower income Americans actually see a greater economic boost from those rewards.
Our recent study also shows households earning less than $60,000 a year use rewards just as much as wealthier cardholders. In fact, over the last four years, rewards cards have been becoming more popular with low- and moderate-income individuals. Credit card rewards are becoming commonplace because of the benefits they offer consumers and small businesses alike — why would you want to pass up on the chance to earn cashback on the purchases you are already making? Amongst low- and moderate-income individuals, cashback is the top choice of rewards.
If the credit card mandates in the Durbin-Marshall Credit Card Bill materialize, this essential resource will go away, and consumers will be left figuring out new ways to offset the costs of going back to school and fighting inflation. Mega-retailers who support these mandates like to claim they will share resulting savings with customers, but they made those promises before. When similar mandates were enacted by Congress on debit cards in 2010, mega-stores did not lower prices. The Federal Reserve Bank of Richmond found 98% of retailers raised prices or kept them the same. This time around the independent Congressional Research Service looked at the proposed credit card mandates and reported it’s “not clear” any savings would go to consumers.
Senators on the left and right talk a whole lot about protecting the working class, but letting these mandates move forward would mean less money in the average family’s pocket. This particularly hurts during times like back-to-school season, when families’ budgets are pushed to their limit. It should be the goal of our elected officials to make Americans’ lives more prosperous, not less. Leaders in Congress need to stand with hard-working families and oppose the Durbin-Marshall Credit Card Bill.
