Credit Cards Take From Poor, Give to the Rich

Wall Street Journal
July 27, 2010

Credit cards appear to be the reverse Robin Hoods of the financial world.

A new paper from the Federal Reserve Bank of Boston says merchant fees and reward programs offered by many credit-card issuers essentially take money from those who have the least and give it to those who have the most. The imbalance may have to be remedied via government intervention, the authors, Scott Schuh, Oz Shy and Joana Stavins, argued. The paper was published as part of the bank’s Public Policy Discussion Papers on Monday.

It comes amid big changes for the financial industry, as the nation’s bank regulators look to implement newly passed oversight overhaul legislation, some of which is aimed at protecting consumers from unfair credit-card practices.

The paper said that on average, households that use cash for purchases give $151 to those households that use credit cards annually. Meanwhile, card-using households get $1,482 from those who pay cash. The paper calls this a “regressive transfer” of wealth. At the heart of the issue is a lack of knowledge.

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You can find the paper here