Consumer Crunch

Credit Cards: 'Reverse Robin Hood'

Here’s a possible priority for the newly established Consumer Protection Bureau: A study released on Monday from the Federal Reserve Bank of Boston confirms—and quantifies—that credit card-reward programs create, as the study states, “an implicit money transfer” to comparatively wealthy credit card users from those who pay with cash. In order to cope with consumers who rack up points by using plastic everywhere, merchants institute across-the-board price increases to cover the costs of accepting cards. As the researchers wrote in the report, “This retail price markup for all consumers results in credit card-paying consumers being subsidized by consumers who do not pay with credit cards.” The report concludes that households making less than $20,000 a year lose about $23 a year from the system, while those making $150,000 or more annually receive a subsidy of $756 every year. Put differently: The rich get $756 richer, the poor get $23 poorer.