Do Credit Card Systems Effectively Tax the Poor and Reward the Rich?
Robin Hood and his band of merry men infamously, if apocryphally, robbed from the rich and gave to the poor. Over the last decade, some economists have postulated that credit card companies do the opposite – forcing low-income cash customers to pay higher prices for retail goods that effectively fund the frequent flier miles and other rewards that go predominantly to affluent cardholders. Because the credit card systems prohibit surcharging, everyone pays the same price. But, these analysts reason, merchants inflate their prices across the board to cover the cost of credit card acceptance. While credit card customers are rewarded handsomely, the poor, who often use cash or checks, get the shaft. In this sense, these commentators claim, card systems are reversing Robin Hood’s redistributive quest. Until recently, the reverse-Robin-Hood-cross subsidy (“RRHCS”) hypothesis was limited largely to theoretical economic analysis. Not any longer. Merchants have recently filed more than 50, now
