How Swipe Fees Are Fueling California’s Growing Debt Crisis 

February 26, 2025

California, like much of the country, is facing an unprecedented credit card debt crisis. WalletHub’s latest report shows that credit card debt in California is increasing faster than anywhere in the country, with the average household now carrying $13,416 in credit card debt.

This troubling trend reflects the broader financial strain that has stemmed from the rising cost of living in California, where high rents, expensive gas, and sky-high grocery prices are making it harder for residents to make ends meet.

But that’s not the only reason so many Californians are falling deeper into debt. Hidden within each card swipe is a growing contributor: the interchange fees – known as “swipe fees” – that big banks collect with every transaction. These fees range anywhere from 2 to 4 percent, costing families in our state over $1,100 a year.

California’s debt crisis isn’t merely a result of overspending. It reflects a broken financial system that disproportionately benefits big banks at the expense of everyday consumers.

Visa, Mastercard, and credit card issuers relentlessly promote a lifestyle that appears attainable through high-fee rewards cards, luring consumers into a cycle of debt. Remarkably, even amid financial struggles, two in every three consumers still continue to chase after the very rewards points that helped fuel their debt in the first place.

According to the Federal Reserve, Americans now owe $1.17 trillion in credit card debt, with delinquency rates on the rise – particularly in California, which ranks 12th in the nation for late payments.

Meanwhile, big banks like Capital One are spending billions of dollars on marketing high-fee credit cards that promise luxury lifestyles through points programs. These programs might sound appealing, but they are a key part of the problem. For example, to unlock 75,000 miles from a Capital One’s Venture X card, a consumer must spend $4,000 in just three months—on top of paying an annual fee. The real kicker? These banks also collect swipe fees on every transaction, forcing retailers to absorb billions in costs, which are ultimately passed down to consumers through higher prices.

The irony is stark: low- and middle-income households often subsidize the perks enjoyed by wealthier cardholders who can pay off their balances in full each month. As these fees climb, so do prices on everyday essentials — from groceries to gas — creating an unsustainable cycle of debt that too many Californians find themselves trapped in.

What’s most concerning is that many consumers are not even aware of this cycle. The swipe fees that fund luxury rewards programs are largely invisible, because they are paid by retailers — though those costs are eventually passed on to consumers. And according to the Consumer Financial Protection Bureau, loyalty programs are designed with complex terms meant to keep consumers paying interest long after they’ve racked up rewards.

In cities like Santa Clarita, where households carry some of the highest credit card balances in the nation, the weight of this debt is particularly crushing.

It’s clear that change is needed, and fortunately, a solution is already on the table in Congress — the bipartisan Credit Card Competition Act (CCCA). This legislation would cap the swipe fees that credit card companies charge, encouraging greater competition in the payment processing industry while reducing the grip big banks have on consumers. By lowering these fees, we could ease the financial strain on small businesses, allowing them to keep prices down, and help consumers pay off their credit card debt more quickly.

As Californians, we can no longer ignore the burden that swipe fees are placing on our wallets. Supporting legislation like the CCCA is essential to breaking the cycle of debt that continues to strain our communities. It’s time for Congress to step up and give Californians — and all Americans — a chance to escape this escalating debt crisis.

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.