Blog: New EU Legislation Kills Credit Card Perks


credit cards

With the recent introduction of a new EU law pertaining to the capping of interchange rates comes a number of reward losses for the consumer. The new law has been introduced by the EU because of the belief that consumers have been paying the price for charges to merchants by card suppliers, which are deemed excessive and obscure.

Following this new law which places restrictions on the profits that can be made from credit cards, and with Capital One leading the way, many of Britain’s card providers are now cutting the credit card rewards they offer, such as air miles and cash bonuses, as well as the actual rewards cards.

Capital One has led the way in scrapping a number of its perks, such as paying its users 5 pence for every £1 that is spent, stating that a number of rewards were just no longer sustainable. Capital One has since withdrawn all of its reward cards and it is thought hundreds of thousands of current customers are to be affected by the lower rate of rewards earnings from the 1st June 2015.

Earning on credit card spending is incredibly popular, with approximately 9 million people putting their daily spending through their credit cards, earning points and rewards as they do so. In recent years many customers have earned hundreds of pounds in rewards, especially in air miles, earning banks like American Express, Barclaycard and Santander, as well as numerous others, a huge number of incredibly loyal customers.

It is expected that Capital One are just the first of many to retire such rewards card or at the very least the first to put an end to their generous reward schemes.

With the introduction of the new EU rule, which will be in effect as of October 2015, the amount card suppliers can charge shops will now be limited to a rate of 0.3% (credit) and 0.2% (debit).  This limit will mean a loss of approximately £2.4 billion, so the industry predicts.

Merchants used to pay card suppliers an approximate amount of 9 pence for each purchase by a customer by debit card and then 0.7% of the purchase price when using a credit card. Card suppliers would then be able to pass on some of this revenue through generous rewards to their customers.

The law has therefore frustrated many banks and card providers with Kevin Mountford of Moneysupermarket stating that the law is only going to hurt the consumer when it’s meant to be helping them: “This is a classic case of regulators, in this case European, trying to act with the consumer in mind, only for the policy to come back to bite the very people it was supposed to help.”

The law, in theory, is meant to help the consumer because it is expected that the savings made by the merchants, in the reductions that they pay to the card suppliers, will be passed on at the till. However, there is no law requiring merchants to do so, and therefore absolutely no surety that these savings will be passed on.

Capital One is just the first to start withdrawing its card reward schemes and no doubt others will be quick to follow, something that Rachel Springall from Moneyfacts, strongly agrees with: “All it takes is for one provider to start the ball rolling before others do the same.”

There’s no going back on the new EU legislation, so we will just have to wait and see firstly, whether the savings that merchants can now make by not paying card suppliers so much,  will be passed on to customers and secondly, if the savings are passed on, whether this will even outweigh the loss of the rewards from the card suppliers.

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