Food Stamp Users Subsidize Your Credit Card Rewards Programs

Food stamp users are helping pay for your credit card rewards programs, according to “Priceless? The Social Costs Of Credit Card Merchant Restraints” (PDF), a paper by Gerogetown professor Adam Levitin published in the Harvard Journal on Legislation.

Merchants have to pay credit card companies a fee for every credit card transaction. Merchants are forbidden from passing this surchage directly to the customer incurring it and so raises all his prices (see pages 37-46). These fees are used to pay for credit card reward programs. The result is that customers who don’t enjoy the benefit of rewards programs, like food stamp users, are paying for them.

Priceless? The Social Costs of Credit Card Merchant Restraints [SSRN]


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  1. hubris says:

    Saying “food stamp users” seems very deliberately inflammatory. *Everyone* who isn’t part of a bullshit Rewards Program gets shafted by this.

    Still, not exactly shocking that credit cards rewards programs aren’t *gasp* actual rewards, but rather robbing peter to pay paul.

  2. gorckat says:

    Saying just ‘Food Stamp Users’ is a bit reaction fishing, isn’t it?

    Everyone who uses something other than a credit card is paying the ‘Rewards Premium’.

  3. Bulldog9908 says:

    I would like to strongly disagree with this paper. The professor has forgotten who is paying for the food stamps.

    Me. You. Everyone paying US taxes.

    The good professor has forgotten the “Forgotten Man.” The forgotten man is the taxpayer paying for those food stamps. (To know where I’m coming from on the forgotten man, take a look at the book “The Forgotten Man” by Amity Shlaes.)

    I am subsidizing my own credit card rewards.

    Now that that’s out of the way…what’s the issue? We’ve known for decades that credit card transactions cost money and merchants can’t raise prices for just those transactions, so they raise all prices. There is nothing new here.

  4. fredmertz says:

    By this logic, food stamp users also pay for the toilet paper at credit card company headquarters (and any other expense a credit card company has).

  5. Merchants are forbidden from passing this surchage directly to the customer incurring it…

    They are also “forbidden” from requiring a minimum purchase to use a card.
    Funny how both (minimum $10 purchase or $1 fee for card payments) happen pretty regularly.

  6. enm4r says:

    Stated above already, this is ridiculous. The logic flawed, and he’s selectively taking data to argue a flawed point. Move along, nothing to see here.

  7. enm4r says:

    @Rectilinear Propagation: The min charge I’ve seen plenty of times, and generally if all you have is credit, they’ll do it. I’ve never seen a $1 fee though…and I’m one of those 100% CC users. Do you have any specific places or examples I could check out?

  8. bnet41 says:

    @Rectilinear Propagation: Where have you seen the $1 fee thing? Wow, I would so report that business to Visa and such.

    You see a lot of the minimum purchase amount signs around NYC for some reason. I never saw this amount in other places I’ve lived. I know it’s against the rules, but you would wear yourself out trying to report all them.

  9. Pope John Peeps II says:

    @Bulldog9908: I think the professor at Harvard knows what he’s talking about. And I think he probably knows where the money for food stamps comes from. Perhaps he’s just illustrating some hidden costs that consumers might not be aware of. Maybe he wants people to know that the beleaguered “food stamp” system is even worse than they thought.

    But if you’re so parsimonious that you resent paying taxes to keep people from starving, well, too friggin bad. Suck it up, Chuck. You get to live in a country with the most affluent middle class this planet has ever seen. So affluent, in fact, that they have the luxury of whining about how they are “forgotten” despite having every single privilege and advantage in the American marketplace.

  10. zentec says:

    This is a flawed argument. Not all merchants accept food stamps, and those that do have to adhere to rules that add costs to the products sold and that cost is passed along to everyone else who doesn’t use food stamps. Worse for large merchants, the regulations concerning the acceptance of food stamps can vary by location adding more expense to keep compliant. Merchants can face fines if they allow any portion of the food stamp benefit to be used to purchase alcohol, tobacco and some other items.

    Credit card merchant fees can be a significant burden. The merchant’s discount rate (percent paid per dollar to the credit card companies) is affected by volume, type of business and type of card. And the merchant assumes all risks in accepting the card; if it’s fraudulently presented, it’s the merchant who gets the charge-back and is out the money.

    There’s costs to accepting cash and checks, however. The merchant passes along the loss from bad checks to everyone else, and the expense of handling large amounts of cash isn’t negligible either. When I had my business, my business office finally told me one morning that they were not comfortable with the volume of cash we had on the premises, and they no longer wanted to be responsible for seeing it to the bank.

    I quickly learned that there’s nothing like the settlement process at the end of the day as opposed to dealing with bad checks and paying a firm to securely transport my cash receipts to the bank.

    Certainly the merchant fees are passed along to all customers whether they use a credit card or not. Ten seconds on the computer or POS terminal and my daily receipts were in the checking account. It was worth 4.2% of each sale, and as my receipts grew and I had established a record of containing fraud and charge backs, my discount rate dropped through the years.

    It isn’t a perfect system, and the credit card companies are not angels. But saying rewards programs are subsidized by people who don’t use credit cards is ignoring the costs non-credit card users impart as well. It’s called the cost of doing business, and it is what is is.

  11. gershinator says:

    @enm4r: The places that charge fees for CC user are not going to advertise that they charge for credit card usage, otherwise they won’t be allowed to take CC.

    A local deli around here charges $.50 if your purchase is less than $10, and my dry cleaner says that they won’t accept a purchase less than $10.

    No credit card user (at least the ones in their right mind) are going to fight over this, as the maximum gain is (assuming $10 min purchase and 3% rewards) $0.30. How many people are going to waste an hour of their time on hold with a credit card company for $0.30?

  12. Steel_Pelican says:

    Merchants markup their wares to cover operating costs?

    Scandal of the century.

  13. Steel_Pelican says:

    @Pope John Peeps II: Credentials=/=validity

  14. goodguy812 says:

    to me the cost of doing business means the card companies should soak up the cost of the merchants fee. that also would give incentive for more merchants to accept them. a lot of merchants in my area stopped accepting cards because of those fees. whats funny is they will take a check still. and its hard to mark up a candy bar or a bag of chips to absorb a possible card transaction.

    or yes if the merchants want the business of the card users, they should absorb the cost of it without raising prices. if all i use is cash i shouldn’t be paying the fee’s for all those using a card.

    its a double edged sword, two way road, and a catch 22.

  15. scatyb says:

    @Pope John Peeps II: Since when should I have to be forced to pay for someone else? Just because I may be more well off for whatever reason doesn’t mean I should be forced to pay someone else’s way. Or are you saying that it would be ok for me to waltz into someone else’s house and steal their car or stash of cash if they have more than me? I call it stealing because that’s exactly what it is. Just because it’s the government, doesn’t make it ok; on many fronts it makes it worse.

  16. zolielo says:

    I agree with the others spurious logic and inflammatory.

  17. zentec says:


    Wolves have a social hierarchy that generally keeps all members of the pack fed. Are you saying that humans can’t come to another animal species level of compassion?

    C’mon, if you want to complain about stealing, rile onward about government waste, no bid guaranteed profit level contracts before you complain about feeding the poor. Yes, government reallocation programs very well may be stealing, but if feeding the poor were the only tax levied on you, would you still want it eliminated?

  18. ThomFabian says:

    The free market works perfectly for you then. Feel free to open a store that refuses to accept credit cards so as to lower the cost of doing business and presumably the cost of the products will attract you clients who are likeminded.

    Credit card companies have a cost per transaction. Retailers see that cost as worth paying so as to attract customers who desire that “convenience”. The prices inside the store reflect a whole subset of costs/fees associated with doing business and to suggest you’d like not to pay one because you don’t think it worth it is wishful thinking.

    Try arguing that you would’ve gone to store regardless of them advertising therefore you’d like a discount so as to not be paying the small part of the product cost associated with advertising.

  19. Steel_Pelican says:

    @goodguy812: “if all i use is cash i shouldn’t be paying the fee’s for all those using a card.”

    You can’t pick and choose what parts of a markup you’re willing to pay. You can’t say “I shouldn’t have to pay for toilet paper in the public bathroom if I never use the restroom” or “I shouldn’t have to pay for a cart if I only need a box of cereal” or “I shouldn’t pay the wages of the clerks who didn’t wait on me.”

  20. scatyb says:

    @zentec: You bet. I give my money to many charities that I believe are more effective IN ADDTION to the taxes levied on me. Regardless of how good the cause is, I should not be forced. I don’t know where people get off thinking that I, or anyone else for that matter, am unable to do the right thing voluntarily and must be forcibly coerced.

  21. Squeezer99 says:

    the merchant doesn’t have to sign a contract to use visa/mc/etc if they don’t want to. they just won’t be able to accept CCs, which may lose them some business, but that is their choice. and don’t even get me started on people that use food stamps, unless they are in college, they need to get a job/better paying job.

  22. Pope John Peeps II says:

    @scatyb: that’s a really lousy rebuttal. I’m merely stating that as things stand now in America, you as a citizen are granted the freedom to work and amass wealth. Your taxes pay for the playing field you all play on. Infrastructure, utilities, schools. All of these work to your advantage. Along the line someone decided that having people die of starvation wasn’t terrific so that became part of the playing field too. Think how many aspects of your life and work, and the “free market” are protected by Government action (hint: ALL OF THEM), and how many advantages you get because of it. The only reason you’re “well-off” is because you, or your parents, was able to capitalize on the environment PROVIDED for you by the Government. You got LUCKY. And now you come back to me and say that you’re unwilling to help someone lower on the food chain? That’s totally uncivilized.

    @Steel_Pelican: Actually, yes. Certain credentials do equal validity. Credentials enough to get you a professorship at one of the finest schools in the world equals a long history of writing and producing excellent work. Which equals validity.

  23. glomm says:

    This paper is extremely lame, and one needn’t read further than the abstract to see why. He recognizes the cost merchants incur by accepting credit cards, but completely ignores the benefits.

    Customers using credit cards are more likely to spend more, and to spend it at stores that accept credit cards, so merchants are able to substantially increase their revenue by accepting credit cards. Presumably this increase in revenue offsets the cost of the credit cards, otherwise merchants would never accept them.

  24. MyCokesBiggerThanYours says:

    Yes, but since the bottom 30% of wage earners (including food stamp users) pay a net zero of income taxes Food Stamp USers aren’t paying for jack sh*t.

  25. Alvis says:

    “Merchants are forbidden from passing this surchage directly to the customer”

    Is there a source for this? All the gas stations around me charge more for credit than cash.

  26. scatyb says:

    @Pope John Peeps II: Did you bother to read my post? I “give to charities I believe are more effective IN ADDTION to taxes levied on me.”

    Scenario: Affluent middle class family with two kids and two cars. Poor couple with little to eat and no children and no car. Middleman enters middle class home and takes rainy day money, keeps a portion of it, then gives the rest to the poor couple. Middleman also takes one car, keeps the doors, then gives the car to the poor couple.

    I believe in helping others and I do help others. I do not believe in forced coercion just because someone else thinks I should. I never used a public school, yet my parents still had to pay taxes for that. My children will not use public school, yet I will be taxed for that. It is reasonable to expect the government to run somehow and to get taxed for that very purpose, but not for any other reason. Is not personal property just that? Personal property is not public domain and that includes money belonging to my family. Just because someone thinks it’s a good idea to take from me to give to someone else, doesn’t make it right regardless of the situation.

    But that is obviously beyond your understanding and enters the realm of politics/socialism, which is for a different discussion

  27. skrom says:

    It’s about time they pay for something instead of always wanting handouts and refusing to work

  28. cde says:

    @Alvis: Which state though? Most of the east coast pays the same, cash or credit, so essentially, the gas stations are making more money on cash purchases because they dont need to pay any merchant fees.

  29. @enm4r & @bnet41: I’ve been to two movie theaters that have done this. One was a Carmike and the other was a Regal but I’m not sure they still do it. (I suppose it’s possible they only did it with debit cards and not credit cards but then I’d think they’d just run everything as credit.) This was before I knew about Consumerist so I didn’t know they weren’t allowed to do this.

    Oh, and there’s also a local pharmacy that’s doing that now (not as much as a dollar) instead of doing the minimum purchase thing.

  30. Alvis says:

    @CDE New Jersey

  31. SOhp101 says:

    Old news, but while everyone else is getting rewards for using their plastic, so will I. Maybe if they all stopped accepting plastic they could lower prices.

  32. MercuryPDX says:

    @cde: Washington as well.

  33. digitalgimpus says:

    This doesn’t sound accurate. Merchants have marked up between 1-3% to cover CC fees since day one of their existence. I’m pretty sure rewards programs came about well after credit cards.

    Hint: There’s a reason AmEx’s revenue was $27.136 billion USD (2006).

    From Visa’s (1277 Mil USD in 2006) Annual Report:

    Our operating revenues are primarily derived from service fees, international service revenues and data processing fees.
    We do not issue cards, set related fees or determine the interest rates consumers will be charged on Visa branded cards.

    Considering how few people manage to cash in on rewards programs because of all the terms/rules/limitations and the hassle… I’d bet they eat away at a tiny percentage of total revenue these companies make.

  34. zeroraveson says:

    The ‘I don’t use public schools, so I shouldn’t pay for them’ argument is a horrible way to make a point. Do you really think that the only thing a school does is to make the students’ future wage higher?

    Don’t you think that it is beneficial for the cashier at the grocery store to be able to read the text on a coupon, or for the barista at Starbucks to be able to do the math on the fees for that extra shot of syrup? By having an educated population, it greases the wheels of the economy and does benefit even those people in private schools.

    Helping others is great, and I applaud you for donating to charity. However, there are many people who are more greedy than you are, and won’t donate to a food bank or other charity. I’m fine with paying my taxes, because I know that will contribute to programs that benefit the public good. Bridges to Nowhere and other government waste is what needs trimmed – that is where the government is stealing.

  35. Alvis says:

    I looked into the Visa merchant rules.

    A store CAN have higher credit than cash prices, but they must be marked as a discount for using cash, rather than an added fee for using credit.

  36. cde says:

    @Alvis: Jersey? No shit? You must live in the uncivilized South. Here in North Jersey, I have never seen a gas station charge more for credit then cash. And I would never buy there if they did. Closest to that is a gas station that taped up all the signs saying they accept credit cards, and for a while they did stop. But if you pull up, and ask if they do, they still will.

    @Alvis: So lip service.

  37. zolielo says:

    I live in CA and though it has been a while I have in the pass asked for a cash discount. The primary places where I asked was small shops and at the Los Angeles County Computer Fair (which is basically a conglomeration of small shops).

  38. Trick says:

    Last week…


    Woman and minorities hit hardest!

    This week…

    Rich people fly around the world for free!

    Welfare recipients billed for travel!

    Why are welfare recipients using credit cards? If a welfare recipient uses his or her Chase Rewards card on gas, do they not get their 5% as well? If a welfare recipient uses a AmEx costco/rewards card, do they not get their rewards at the end of the year?

  39. Trick says:


    Wolves have a social hierarchy that generally keeps all members of the pack fed. Are you saying that humans can’t come to another animal species level of compassion?

    Wolves don’t have many lazy drunk/drugged out wolves who they have to feed daily, either.

    Wolves don’t have a bloated welfare department that doesn’t care if a wolf is just sitting around doing nothing to get their dead rabbit.

    Help those who truly need the help. The rest can be thrown off to the wolves for all I care.

  40. tvh2k says:

    Oh please, this is a stretch…

  41. King of the Wild Frontier says:

    Jeebus, save us from the knee-jerk libertarians. That, or give us the sort of finely-tuned tax system that keeps us from paying for police service on their block. Amen.