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How Rewards Work

Updated 3/10/16

Only a certifiable nerd curates the 3 most credible resources:  How Rewards Work and Behind The Business

  1. View From The Wing: Banks & Loyalty Programs Behind The Scenes
  2. One Mile At A Time: How Loyalty Programs Work
  3. View From The Wing: Secret Sauce Behind Rewards Programs' Deals

Discover What The Geeks Know That You May Not

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How Rewards Work

Photo Credit: Gaping Void & License

Photo Credit: Gaping Void & License

Following the Great Recession of 2008, a law was passed placing further regulations on the finance and banking industry.  The law is commonly referred to as Dodd-Frank, named after Senator Christopher Dodd from Connecticut and Representative Barney Frank from Massachusetts who were the sponsors of the legislation.  One facet of Dodd-Frank is geared toward protecting consumers from abusive practices by banks.  A last minute amendment added by Senator Richard Durbin from Illinois was referred to as the Durbin Amendment.  The Durbin Amendment required the Federal Reserve to limit fees charged to retailers for debit card processing.  Interchange fees, more commonly referred to as swipe fees, are paid to banks by merchants for the privilege of accepting payment cards.  Prior to the Durbin Amendment, card swipe fees were largely unregulated and averaged 44 cents per transaction.  Aided by extensive merchant lobbying, the Durbin Amendment passed along with Dodd-Frank legislation on July 21, 2010.  

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The new law dictated that large banks would have to charge debit card interchange fees that are "reasonable and proportional to the actual cost" of processing the transaction. The Federal Reserve found the maximum interchange fee that was reasonable for a debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction.  This was considered a major loss for banks, who had been receiving billions of dollars a year from swipe fees. - adapted from CNBC & Williams Mullen

Journey far,

― Joe


“You don’t build wealth with credit card rewards and airline miles. You can’t beat the credit card companies at their own game.”
Dave Ramsey

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