Rewards Cards Only Reward the Credit Industry |

Many Warren Reports readers wrote to us following Professor Warren's .  If you haven't done so already, I encourage you to listen to her discussion about the credit card industry.

In the coming weeks I'm going to try to highlight on this blog some of the stories and feedback that folks have asked us to look into and publicize.  Let's start with merchants rather than consumers.

One small business owner wrote regarding the high costs that card processors charge retailers for every credit card transaction.  These fees can range as high as 6 to 7% depending on the volume of transactions and type of card, with rewards card incurring the highest fees. 

Interestingly, some consumers don't realize that the rewards percentages that kick back into their accounts are not coming from the credit card company.  Rather, the business on the other end pays that amount (and then some) towards the transaction.

Many consumers might find these types of redistributions perfectly acceptable, but the point is often missed that businesses often compensate for these expenses by raising prices. 

Moreover, as our reader points out, retailors are not allowed to give discounts to customers who pay by cash or check.  Doing so will cause them to lose the "privilege" of accepting credit cards as a form of payment.

Thus, the merchant's credit card-related expenses get transferred to all customers, those with rewards cards and otherwise, and everyone ends up paying more for every item and every purchase.  What good are those rewards if you're simply paying more up front?

The only group making a profit or deriving a benefit from these arrangements is, of course, the credit card industry.  Our reader suggests that this "smacks of a monopoly." 

But the credit industry wants you to believe that your "1% cash back" or miniscule airline miles reward is a little something extra that you wouldn't receive if you paid by cash.  They're right, to some extent -- but only because they've forced all of us, cash customers included, to systematically pay extra up front.

Sort of puts a damper on the whole reward card/incentive program, no?

N.Z. Dollar May Gain Versus Australia's on Interest-Rate Gap

New Zealand's dollar may gain against
Australia's currency on speculation that nation's central bank
will leave interest rates unchanged today.

New Zealand's official cash rate is 1.5 percentage points
higher than Australia's 6.25 percent cash target rate. There's
just a 2 percent chance the Reserve Bank of Australia will raise
the benchmark rate at 9:30 a.m. today in Sydney, according to a
Credit Suisse index based on overnight trading in interest-rate
swaps.

``If Australia doesn't go then people will lean toward the
New Zealand'' dollar Alex Sinton, currency dealer at ANZ National
Bank Ltd. in Auckland. ``It's all about the relativity of
interest rates.''

The New Zealand dollar has advanced 7 percent against the
Australian dollar in the past 12 months. That's the biggest gain
of any major currency against the Australian dollar in that time.
New Zealand's 7.75 percent benchmark rate is the second-highest
after Iceland's among countries with the top rating at Moody's
Investors Service, helping swell demand for the local dollar.

New Zealand's dollar bought 89.56 Australian cents at 8:41
a.m. in Wellington, from 89.41 cents in late Asian trading
yesterday. It may rise to 89.80 cents if Australia's central bank
does not increase rates, Sinton said. It fell to 74.07 U.S. cents
from 74.28 cents yesterday.

RBA Governor Glenn Stevens will leave the overnight cash
rate target unchanged today at a six-year high, according to all
26 economists surveyed by Bloomberg News.

Bollard's Strategy

There is a 12 percent chance on the Credit Suisse index
Reserve Bank of New Zealand Governor Alan Bollard will boost
rates at his next monetary policy review on June 6. Bollard
boosted rates twice by a quarter-point in March and April, and
did not warn of further increases at his last review April 26.

The local dollar may extend its drop against the U.S. dollar
today as signs of more economic growth in the world's biggest
economy stokes demand for its currency, Sinton said.

The dollar rose from near an all-time low against the euro
and touched a two-week high versus the yen after a private report
released yesterday showed U.S. manufacturing strengthened last
month by more than economists forecast.

New Zealand government bonds rose after the yield on the
benchmark 10-year note fell 0.04 percentage point to 6.05 percent,
according to data compiled by Bloomberg.

The country's one-year swap spread over the U.S. rate
dropped 0.01 points to 2.86 percentage points today. The one-year
swap over Japan is at 7.33 percentage points, from 7.32 yesterday.

To contact the reporter on this story:
Emma O'Brien in Wellington at