Could new credit card settlement change rewards cards?

A recent settlement reached between retail groups and the nation's largest payment processors could have a significant impact on a number of issues related to how consumers spend on these accounts, and that could include rewards programs.

Some analysts expressed fears that the settlement, which was reached over the ways merchants are charged transaction fees by payment processors, might affect rewards programs, either scaling them back or eliminating them entirely, but it's now believed this will not be the case, according to a report from the Wall Street Journal. Swipe fees, as these charges to merchants are known, typically cost between 1 and 3 percent, and as a result of the settlement can now be charged to consumers instead of being absorbed either into the cost of items or entirely by the company accepting the transaction.

Further, part of that settlement called for payment processors Visa and MasterCard, the two largest such companies in the world, to pay $6.6 billion in damages, as well as for a temporary reduction in the size of swipe fees, the report said. This was the reason many experts believed rewards accounts could take a significant hit. Because swipe fees in general are currently about the same as the rewards rate on many popular cards, some believed payment processors and lenders would trim the value of these accounts as a means of making up the lost revenue.

Why consumers' rewards cards won't be affected
However, there are a number of reasons to believe that this type of measure won't be put into place, the report said. The most important of these is that it's believed few merchants (perhaps only the very smallest ones) will actually take advantage of their new ability to pass swipe fees onto credit card users when they make purchases. This type of provision has been allowed in Australia since 2003, but data from the federal government there shows that through the end of 2010, that only 30 percent of merchants in that nation took advantage. In all, consumers paid these added charges on just 5 percent of credit card transactions nationwide.

Further, there are a number of extremely populous states where surcharging is already against the law, the report said. These include New York, California, Texas, Massachusetts, Colorado, Connecticut, Florida, Kansas, Maine, and Oklahoma. Given that a large number of people live in these states, and many more travel to them, the swipe fee settlement can't have as sizable an impact as if it were allowed to be enforced nationwide. In fact, it's believed the decision might even encourage similar legislation elsewhere.

"Hopefully, what will happen is that other states will move to ban surcharges," Todd Zywicki, a George Mason University law professor who has studied swipe fees, told the newspaper.

It's also important to note that swipe fee reductions will indeed be temporary, the report said. Lenders and payment processors will take a transaction charge revenue hit for a number of months, but will be able to increase rates to normal levels once again relatively soon. While there were significant reductions in debit rewards programs after swipe fees on those cards were permanently slashed by federal law, there will be no such limit for credit rewards.

If credit card lenders and payment processors really want to increase revenues in other ways, they know that altering rewards programs would likely be counterproductive because it would just lead to less card use, the report said. Currently, active rewards accountholders spend at least $40,000 on their cards every year. Many of them also don't carry a balance from one month to the next, meaning that the lender makes no money on interest charges. As a consequence, these companies might instead try to boost annual fees or interest rates as a means of making up the lost income.

Finally, even if some lenders scale back rewards points, it likely won't happen soon, the report said. That's because the settlement still has to be approved in federal court and have a number of conditions involved, including that consumers would have to be informed of the higher price for credit card use, and the charges must match what the merchant pays for the transaction.

Rewards cards with the best redemption options typically are available only to consumers with top-notch credit scores. As such, you should take the time to check your credit report to make sure no unfair markings are dragging down your standing. Working with a credit repair law firm to fix any issues you discover can have a significant positive impact on your credit score and help to return you to where you deserve to be.