Friday, May 27, 2022
No Result
View All Result
  • Media
Support Us
Macdonald-Laurier Institute
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Justice
      • Social issues
      • Social licence
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Justice
      • Social issues
      • Social licence
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media
No Result
View All Result
Macdonald-Laurier Institute

How customers can lose in credit card fee fight: MLI study

November 9, 2017
in Domestic Policy Program, Economic policy, Economy Policy - papers, Latest News, Papers, Releases
Reading Time: 3 mins read
A A

Proposed regulations would harm middle class users of credit card reward programs the most, finds a new report by Morris, Manne, Lee and Zywicki.

OTTAWA, Nov. 9, 2017 – If you examined the contents of Canadians’ wallets you’d find that nine in 10 carry a credit card. And about 80 percent of those people have at least one card that offers rewards that can be redeemed for trips, merchandise or cash back on purchases. Owners of rewards cards will tell you that the ability to collect rewards is the primary reason they use their rewards cards for purchases.

Which is why it’s odd that in the continuing debate about the credit card “interchange fees” charged to merchants, highlighted by a well-reported spat between Visa and Walmart some months ago and a current private member’s bill that would introduce regulations, little is said about the potential effect on users of rewards programs, which are most Canadians.

Today MLI releases its latest report by Julian Morris, Geoffrey Manne, Ian Lee and Todd Zywicki. In the report, the authors find that if regulations were introduced to cap interchange fees, average middle class Canadians would lose hundreds of dollars in benefits each year as they pay higher annual fees, and the value of their rewards declines.

This has been the case in Australia, which imposed caps on interchange fees in 2002: “Middle class consumers in Australia now pay vastly more for their rewards credit cards and receive considerably fewer rewards for each dollar they spend,” write the authors.

To read the full paper, titled “ Punishing Rewards: How clamping down on credit card interchange fees can hurt the middle class,” click here.

These rewards are not just for the very wealthy. As the authors explain, a consumer or household earning $40,000 might expect annual rewards valued at $450, while paying fees of $75, providing a net benefit each year of $375. Meanwhile, a consumer or household earning $90,000 might expect benefits of about $1350 while paying $225 in fees, providing a net benefit of around $1125.

The authors of the MLI study estimate that, were an interchange fee cap imposed here, it would have significant negative consequences for Canadian consumers and the Canadian economy as a whole. Specifically, they estimate that if interchange fees were forcibly reduced by 40 percent:

1) On average, each adult Canadian would be worse off to the tune of between $89 and $250 per year due to a loss of rewards and increase in annual card fees:

a) For an individual or household earning $40,000, the net loss would be $66 to $187; and

b) for an individual or household earning $90,000, the net loss would be $199 to $562.

2) Spending at merchants in aggregate would decline by between $1.6 billion and $4.7 billion, resulting in a net loss to merchants of between $1.6 billion and $2.8 billion.

3) GDP would fall by between 0.12 percent and 0.19 percent per year.

4) Federal government revenue would fall by between 0.14 percent and 0.40 percent.

According to co-author Ian Lee, an Associate Professor in the Sprott School of Business at Carleton University: “This study demonstrates that reward cards provide material benefits to consumers which are well understood by consumers who use these cards.  The study also reveals that attempts by some merchants to lobby government to impose price controls through caps on credit card fees are the major beneficiary while middle class consumers are the major losers through a sharp reduction in benefits.”

***

About the authors:

Julian Morris is vice-president of research at the Reason Foundation.

Ian Lee is a professor at the Sprott School of Business at Carleton University. Prior to becoming a professor he was employed in the financial services industry for nine years.

Geoffrey A. Manne is founder and executive director of the International Center for Law & Economics.

Todd J. Zywicki is a law professor at George Mason University.

The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.

For more information, please contact David Watson, managing editor and director of communications, at 613-482-8327 x103 or email at david.watson@macdonaldlaurier.ca.

Tags: credit cardcustomersreward
Previous Post

Bill C-59, Fall Economic Update highlighted in MLI Newsletter (Nov. 8, 2017)

Next Post

Capping credit card fees would cap benefits to Canadians: Julian Morris and Ian Lee in the Financial Post

Related Posts

Would a handgun ban help reduce gun violence in Canada? Christian Leuprecht on CTV News
Justice

Canadian politicians import American culture wars to exploit tragedy: Jamil Jivani in the National Post

May 27, 2022
How to Avoid Failure in Building Societal Resilience Against Disinformation and Subversion: Policy Brief by Balkan Devlen
Columns

Many have questioned whether Musk has the temperament to run Twitter: Richard Shimooka in the Province

May 27, 2022
MLI experts available to comment on Cabinet shuffle
Releases

Military funding: US envoy agrees with MLI that Ottawa still over-talks and under-spends

May 27, 2022
Next Post
Nazareth in iPolitics: Weak temporary foreign worker program hurts the economy

Capping credit card fees would cap benefits to Canadians: Julian Morris and Ian Lee in the Financial Post

Macdonald-Laurier Institute

323 Chapel Street, Suite #300
Ottawa, Ontario
K1N 7Z2 Canada

613.482.8327

info@macdonaldlaurier.ca
MLI directory

Follow us on

Newsletter Signup

First Name
Last Name
Email Address

Support Us

Support the Macdonald-Laurier Institute to help ensure that Canada is one of the best governed countries in the world. Click below to learn more or become a sponsor.

Support Us

Inside Policy Magazine

  • Current Issue
  • Back Issues
  • Advertising
  • Inside Policy Blog
  • Privacy Policy

© 2021 Macdonald-Laurier Institute. All Rights reserved.

No Result
View All Result
  • Home
  • About
    • Who We Are
    • Who Makes MLI Work
    • Tenth Anniversary
    • Jobs
  • Experts
  • Issues
    • Domestic Policy Program
      • Agriculture and Agri-Food
      • Canada’s Political Tradition
      • Economic policy
      • Energy
      • Health Care
      • Justice
      • Social issues
      • Social licence
    • Foreign Policy Program
      • Foreign Affairs
      • National Defence
      • National Security
    • Indigenous Affairs Program
  • Projects
    • COVID and after: A mandate for recovery
    • COVID Misery Index
      • Beyond Lockdown
    • Provincial COVID Misery Index
    • Centre for Advancing Canada’s Interests Abroad
      • Dragon at the Door
      • The Eavesdropping Dragon: Huawei
    • An Intellectual Property Strategy for Canada
    • Speak for Ourselves
    • Canada and the Indo-Pacific Initiative
    • DisInfoWatch.org
    • The Transatlantic Program
    • Indigenous Prosperity at a Crossroads
      • Aboriginal Canada and Natural Resources
    • Talkin’ in the Free World with Mariam Memarsadeghi
    • Past Projects
      • Justice Report Card
      • Munk Senior Fellows
      • A Mandate for Canada
      • Confederation Series
      • Fiscal Reform
      • The Canadian Century project
      • Fixing Canadian health care
      • Internal trade
      • From a mandate for change
      • Size of government in Canada
  • Events
    • Upcoming Events
    • Past Events
      • MLI Dinners
      • Great Canadian Debates
  • Latest News
  • Libraries
    • Inside Policy Magazine
      • Inside Policy Back Issues
      • Inside Policy Blog
    • Papers
    • Columns
    • Books
    • Commentary
    • Straight Talk
    • Video
    • Multimedia
    • Podcasts
    • Leading Economic Indicator
    • Labour Market Report
    • MLI in the Media

© 2021 Macdonald-Laurier Institute. All Rights reserved.

IDEAS CHANGE THE WORLD!Have the latest Canadian thought leadership delivered straight to your inbox.
First Name
Last Name
Email address

No thanks, I’m not interested.