UK Banks End Reward Programs in Anticipation of Interchange Fee Caps
File this one under “we told you so.” The Independent reports a scale-back in credit card reward programs in the United Kingdom:
The UK’s largest credit card provider has announced that it will no longer offer cashback rewards, labelling them “unsustainable”, after a new EU law was passed last month.
It is thought that other companies may follow Capital One’s decision, significantly curtailing customers’ air miles and cash bonuses in response to legislation from Brussels.
The European ruling will cap so-called ‘interchange fees,’ charged by card issuers to retailers when a debit or credit card is used as payment.
Money reaped by the companies – such as Capital One – under this system allow them to offer customers savings or discounts.
This is exactly what the International Alliance for Electronic Payments , a coalition that includes CEI, warned about in our letter to EU officials in December:
Capping interchange fees has been tried in some countries around the world. Despite claims that these efforts were for the benefit of consumers, the real world results have shown the opposite to be true. In every instance, consumers faced higher fees for banking services, a reduction in benefits and services and saw no return in the form of lower prices from merchants despite promises by merchants and policy makers to pass savings to consumers.
This was only to be expected. Experience with America’s Durbin Amendment showed that debit card rewards schemes dried up quickly after the introduction of caps on debit card fees, and, according to Todd Zywicki, Henry Manne, and Julian Morris, it was the intention of regulators in Australia to encourage a move away from credit card rewards when they introduced their interchange fee caps.
The likely effect on reducing card holder access to air miles is yet to be evaluated. However, air miles sales are a significant source of revenue to airlines. If airlines find that they are unable to sell as many miles to credit card programs, the inevitable result will be an increase in air fares, or a decrease in service levels on flights.
As Daniel Hannan MEP notes in this video, the unintended consequences of such regulatory meddling always end up hurting far more than the people they benefit:
As Zywicki et al. found, those who suffered most from the Durbin Amendment are the million people forced out of the banking system by high fees. As the EU regulation is far more draconian than the Durbin Amendment, we can expect the toll on the people of Europe to be far greater. The loss of cash back rewards is just the beginning.
Find out more about the regulations at My Card Matters.