Opinion: How Big Bank Swipe Fees Fuel New York’s Mounting Credit Card Debt Crisis

November 04, 2024

A recent report from WalletHub revealed a grim reality that has been building for years: New York state has the fourth-highest household credit card debt in the nation, totaling more than$82 billion.On average, that’s nearly $12,000 in average household credit card debt. And the worst part? All of us are helping banks finance expensive credit card loyalty points programs that are making this debt problem worse through hidden fees they charge any time we use our credit card.

It’s all part of a disturbing national trend. In August, the Federal Reserve Bank of New York reported that Americans now owe a record $1.14 trillion in credit card debt, with credit card delinquency rates climbing ever higher. Yet, as consumer debt soars to unprecedented levels, banks have continued to aggressively market expensive reward credit cards to those who can least afford them.

The result? An ever-growing cycle of debt and increased junk fees that benefit the big banks raking in billions in profits while putting New Yorkers — and all Americans — in a deepening financial hole. And despite this reality,two in every three consumers still chase the very rewards cards that got them into debt in the first place.

This is a mindset that banks instilled into consumers’ minds through heavy marketing of loyalty points programs to convince consumers they need these rewards, whether it’s for “free” travel, tax-free cashback, or discounts at their favorite stores. American Express alone reportedly spent$1.2 billion on marketing in the third quarter of 2023, while Bank of America spent at least $37 million on advertising in 2022. Influencers like the Points Guy further fuel this obsession by promoting credit cards with high annual fees.

But the truth is far from the glossy picture painted in big banks’ billion-dollar marketing campaigns. Instead, they come with “complex terms buried in fine print, designed to keep consumers in debt” as the Consumer Financial Protection Bureau has noted. For example,to receive the full 60,000 sign-up points reward from your Chase Sapphire card, consumers need to spend $4,000 within three months, plus pay a $95 annual fee. Similarly, American Express’s Delta SkyMiles requires a $2,000 spend to unlock the 70,000 bonus miles signup offering, alongside a $150 annual fee.

The irony is palpable: New Yorkers are drowning in debt with the very credit card companies that coaxed them into signing up for cards they didn’t need. And the kicker? Thanks to what are known as “swipe fees” charged by credit card companies, the average consumer is also footing the bill for the high-income earner consumers who can take the most advantage of these loyalty rewards programs.

While many may not be aware of it, every time you swipe your credit card to make a purchase, credit card companies — typically Visa and Mastercard — charge the retailer a “swipe fee” that can range anywhere between 2% and 4%. These swipe fees are how banks fund loyalty rewards credit card programs. And while this charge won’t show up anywhere on paper, retailers are paying over $170 billion in swipe fees every year — a figure that has increased over 50 percent in the past four years.

In turn, retailers are often forced to pass these costs on to consumers in the form of price increases. The end result? Low-income consumers get hit the hardest: They’re not only falling deeper into credit card debt and piling up interest costs but also paying higher costs across the board because of ever-increasing swipe fees.

This cycle of debt needs to be addressed as New Yorkers fall further behind on their credit card bills. Fortunately, the bipartisanCredit Card Competition Act(CCCA) introduced in Congress is a step in the right direction. It aims to limit the swipe fees that credit card companies charge retailers and to limit the power megabanks have over consumers by promoting competition in the credit card processing marketplace. By limiting swipe fees, lawmakers can reduce costs for consumers and businesses while also potentially helping to curb aggressive credit card marketing tactics.

The credit card marketplace has long been dominated by anti-consumer practices such as hidden junk fees and fine print bait-and-switch tactics. The CCCA is a step toward reforming this system. With our credit card debt crisis spiraling out of control, Congress must take action now.

Americans for a Modern Economy is committed to ensuring that local, state and federal policies reflect changing technologies that are reshaping the way consumers, businesses and communities operate in the 21st century economy. We work with consumer advocates, businesses, think tanks, economic experts and others to raise awareness and inform discussions about the current and future policy challenges of new technology. We serve as a resource for lawmakers to help them develop modern policy solutions that benefit all Americans by expanding consumer freedom, allowing businesses to best serve their customers and preserving free market competition.