[driscoll42]

There was a study by the Federal Reserve that came to the conclusion last year that rewards cards is basically a money transfer of ~$15 billion from poor to rich per year. Discussion on Hacker News about it: https://news.ycombinator.com/item?id=34492502

[WaitWaitWha]

That is exactly the opposite what the study states. https://www.federalreserve.gov/econres/feds/files/2023007pap...

In the abstract:

> sophisticated individuals profit from reward credit cards at the expense of na¨ıve consumers.

Then in the study:

> Next, we study whether the redistribution across FICO scores is driven by differences in cardholders’ income, suggesting a transfer from poor to rich consumers. Indeed, We adopt the following terminology: “Reward cards” are credit cards that earn either cash back, miles, or points; “classic cards” are credit cards that are do not earn any form of rewards. credit card rewards are often framed as a “reverse Robin Hood” mechanism in which the poor subsidize the rich. Our results, however, show that this explanation is at best incomplete. [...] Thus, high-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores.

[Kranar]

The Fed is very careful to differentiate between income and wealth. You can be wealthy with little income and you can have a lot of income but not be wealthy.

While the study points out that high income, high FICO consumers benefit at the expense of high income low FICO consumers, which strictly controls for income as opposed to wealth, ultimately the study concludes what OP said it does, that reward programs transfer wealth from the poor to the rich, and I quote:

>Credit card rewards transfer income from less to more educated, from poorer to richer, and from high- to low minority areas, thereby widening existing spatial disparities.

[0xbadcafebee]

At the end of the quote you excluded this:

"We find a redistribution from low- to high-FICO consumers regardless of income."

Poor people have low FICO scores. There are also high-income people with poor FICO scores. Both are involved.

"Thus, high-income consumers with high FICO scores benefit from reward credit cards largely at the expense of high-income consumers with low FICO scores."

The high-income people have much more money, thus have more to contribute to the pool of money going to high-income high-FICO people.

But poor people, who already don't have much money, are also contributing to this pool of money going to high-income high FICO people. And more to the point, it impacts poor people much more, because... they're poor.

So it's not completely the opposite, it's just inaccurate. The poor are subsidizing the rich, and the rich are subsidizing the rich. The difference is, there is a much larger effect on the poor, because... they're poor. They have less access to credit and that lack of access affects them more. A small amount of money lost has a larger impact.

In addition to all this, people of color also have lower FICO scores, so not only is it a burden on the poor, it's a burden on people of color (and the young in general). https://finmasters.com/average-credit-score/ https://www.cnbc.com/2021/01/28/black-and-hispanic-americans...

[skrbjc]

Are any of these people required to open a credit card? If you're poor and low FICO, then you shouldn't have a credit card in the first place, just a debit card. And if you're poor and high FICO, then a credit card will provide you benefits.

It seems like the proposal is to take away rewards for everyone because there's a group of people that can't help themselves. Why not just be more strict about who gets a credit card.

[0xbadcafebee]

> If you're poor and low FICO, then you shouldn't have a credit card in the first place

The poor need credit cards. Having a credit card is one major way to improve your FICO.

Credit is a critical part of everything from obtaining housing, to lower rates on auto and home loans and insurance, to the ability to pay for necessary life emergencies when you don't have savings (and the poor don't have savings). Having bad credit can even make it difficult to get a bank account, which you'd need for a debit card. People who don't have credit cards often resort to check-cashing stores to cover their expenses, which are predatory and charge exorbitant fees, keeping the poor poor.

> there's a group of people that can't help themselves

I don't know how to say this in a way that will make sense to you, but this idea that "they can't help themselves" or are just "irresponsible", and that's what led to their situation, is wrong. And the idea that they shouldn't get some form of assistance is wrong. It's kind of complicated, and I would need to be typing here for an hour to begin to explain it... There are tens of millions of people in the US alone that struggle every day because of a credit history that they are often not in control of, and predatory businesses that make it impossible to climb out of debt, and basic human livelihood restrictions that are tied to FICO. I really can't stress enough how important it is for the poor to be able to get access to credit and increase their score. Hopefully someone here can suggest a book or article that you can read that will explain it in depth.

[daveoc64]

People without a credit card are still subsidising those with reward cards, as the high interchange fees are spread out across all of a store's transactions.

[Kranar]

I don't see any proposal put forth. I see a study that is observing human behavior.

The behavior being observed is merchants increasing their prices for all consumers to accommodate a subset of consumers who use reward cards, where reward cards end up being a form of income for their holders.

The distribution of consumers who gain the most income from reward cards are those who are more wealthy. The distribution of consumers who lose the most money as a consequence of having to pay higher prices due to said reward cards are the less wealthy. The end result is a transfer of wealth from those less wealthy to those more wealthy.

That is an observation, not a proposal or a judgement. You are welcome to make a judgement or put forth a proposal from that observation but the study itself did not do so.

[TehCorwiz]

These programs operate by placing the burden on the vendor who inflates prices and thus even people who pay in cash pay for the programs indirectly. So even if you don't want a card, or can't get one you still pay for it.

[TehCorwiz]

Also from the abstract: "We estimate an aggregate annual redistribution of $15 billion from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities"

[duxup]

Gotta be honest that I'm not reading 60 pages at this moment.

But that reads like they're talking about the net effect measuring across FICO scores, but it's not clear that they're talking about the overall cause / if this is a case where some of the poor could in fact choose to use these cards.

Being poor is complex, just not having time (two jobs, etc) often means they don't have time for a lot of things, including shopping for credit cards. I wonder if things like THAT are playing a part.

I don't disagree with the math on the end result, I do think the reason is larger than just say rewards cards, and has to be approached careful.

[11101010001100]

If these 'luxury' credit card companies wanted poor customers, you think they would have found them by now?

[bakhlawa]

I think the Grandfather was making a different point. That because rewards cards = higher interchange fee for the merchant, this results in the merchant increasing fees on everyone (the payment networks prohibit charging a higher fee to only those paying with a credit card).

>>>The money extracted by the credit card companies and Visa causes merchants to raise prices for everyone regardless of whether they have a rewards card or use a credit card at all.

>>>This creates in effect a massive money transfer from the poor, who do not use rewards cards, to the rich consumers who do.

[duxup]

The pricing point is such complicated one too. Demand creates pricing changes, supply chains, etc...

If say the poor used these cards at a higher volume, wouldn't they then to be passing on the changes to other poor?

[wyre]

The poor/low-FICO scorers are either A) not getting accepted into credit card programs, B) paying higher interest rates, or C)not able to make their payments in full each month.

Compared to another individual that can put all their purchases on a rewards card and pay off their balance every month.

The pricing point isn’t that complicated either. Nearly every business accepts credit card and can’t avoid the higher credit card fees that pay out to reward programs.