Wednesday, July 28, 2010

Wealth Transfer and Credit Cards

National Public Radio's Planet Money program had this story on credit card reward programs, yesterday. It's about who uses credit cards, who pays for the benefits, and who receives them. The piece is based largely on this paper from the Federal Reserve Bank of Boston.

My question is "Is this news?" We learn in Economics 101, "There's no such thing as a free lunch." The fact that using credit cards has a cost is something that should be understood by all students, whether in an economics or personal finance course.  Many people don't understand just how significant the revenues from these fees are to card-issuing banks.

This is why some stores will try to charge different prices for cash and for credit from time to time. Those stores are trying to properly allocate the cost. (A quick search indicated a cluster of stories on this back in 2008 when gas prices spiked.)  And it's why retailers have tried repeatedly to get legislation to limit the fees.

As always, I welcome your comments.

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