Credit Card Rewards Programs Sure Aren't Rewarding for Poor People

Credit card companies get me all riled me up. The predatory nature of their promotions, the practice of hiking up interest rates and minimum payment amounts whenever the companies please, the small print that's designed to confuse customers, especially those who are less financially stable — it all makes me really angry. Now, I apparently have one more item to add to that list: credit card rewards programs that benefit wealthier people but are subsidized by the poor.

According to a new Federal Reserve Bank of Boston report (pdf) summarized on the New York Times Bucks blog, credit card rewards programs represent a "reverse Robin Hood problem" — that is, they take from the poor and give to the rich.

The problem arises when consumers put a lot of dough on their credit cards in an effort to maximize their credit card rewards points. We've all known people who shop that way, putting every purchase they make on their credit card so they can rack up enough points to get a discounted airline ticket, for instance. Well, apparently the unintended consequence of all those credit card purchases is that stores are forced to raise prices across the board to cover the cost of the cards. (Credit cards are not cheap for business owners. The fees they pay for the "privilege" of accepting credit card payments are incredibly steep, which explains why many small businesses can't afford to do so.)

As a result of these blanket price increases, poor people — who are less likely to have a credit card or earn rewards — wind up paying more money for goods without receiving any benefits. Here are the actual numbers: the lowest income households (those earning less than $20,000 a year) end up paying an additional $23 annually, while the highest income households (those making at least $150,000 a year) receive $756 every year in benefits. Raw deal, huh?

A separate Bucks blog post from earlier this year has some good ideas for alleviating "credit card guilt," including going cash-only at certain stores and donating rewards points to charities that help the poor. Do you feel guilty for using your credit card, and if so, do you plan to do anything about it?

Photo credit: Andres Rueda