Paper or plastic? [Commentary]

As more people rely on credit cards over cash, the consequences will likely include more than fraud

April 15, 2014|Thomas F. Schaller

Cash or credit?

Cash: At the Hot Stove restaurant on Cape Cod, which I visit every summer vacation for one of their tasty burgers served on English muffins, patrons must pay their tab in cash or by check. A few years ago, the pub stopped taking credit cards to avoid paying transaction fees to Visa and MasterCard. There's an on-site ATM for customers unaware of the new policy.

If this sounds like a stupid, even selfish business decision, think again: Each year the Hot Stove's owners donate the amount saved in transaction fees to local charities.

Credit: All Washington, D.C., cab drivers are now required to accept credit cards for payment. The bad news for the cabbies is that they have to report a lot more of their tipped earnings, which can't be hidden the way cash tips can. Everybody who has worked in a tipped industry knows — myself included: I waited tables to pay my way through college — that cash tips are rarely reported in full to the IRS.

The good news for D.C. cabbies is that, after New York City added credit card machines to their taxis, riding volumes and average tip amounts increased. Patrons apparently tip more when offered suggested tipping amounts by in-cab credit payment screens.

Paying with credit has undeniable allure, including the monthly grace period before the bill comes due and the convenience of, say, paying at the gas pump rather than having to go inside the station to pre-pay with cash. Although PayPal and debit cards provide alternatives, credit cards undoubtedly facilitate online shopping. And then there are rewards: I pay many of my bills — phone, cable, car insurance — by credit card to earn free hotel nights and airline tickets.

But are these benefits actually free? Surely vendors factor into their prices the fees they pay the credit companies, just as credit card companies factor into their fee schedule the flyer miles and other benefits they disperse as incentives to use their cards.

Retail prices for almost everything are therefore slightly higher. I've had retailers ranging from a scuba dive boat operator to a picture frame shop owner offer me lower prices if I paid cash instead of credit.

Indeed, what's puzzling is how few businesses — aside from the occasional gas station — routinely offer lower cash prices. Absent a cash discount, only suckers pay cash, right?

Some businesses surely prefer not to have cash circulating through employees' hands because employee theft is a risk. But so is credit card fraud. Just ask Target, which recently apologized to millions of customers whose credit card numbers were corrupted.

Most people I know from my brother's generation — born in the 1970s — or younger charge almost everything now. They routinely have little, if any cash, on hand. Comedian Rob Delaney jokes about using his credit card to buy a single banana.

But as entire generations of consumers become conditioned to use credit rather than cash, there will be more consequences than fraud.

Loss of consumer privacy is one. I wish some of the conservatives who complain incessantly about the predations of "Big Brother" governments they fear are tracking their gun purchases would raise at least the occasional objection to how much corporations now know about the rest of our consumer behaviors.

The other big cost, especially for those living paycheck-to-paycheck and with no savings, is the burden of servicing credit debt.

When big banks get over-leveraged, they turn to the government for bailouts. And guess what? So do individuals: Americans' average credit card balance dropped after the financial crisis — which sounds like good news until you learn that the decrease resulted from millions of people simply defaulting on their debts.

The banks holding those debts somehow had to make up the losses, and you know how they did it: using the rest of us. Even if you diligently pay the full monthly balance on all your credit cards, indirectly you're subsidizing not only Visa and MasterCard, but the banks covering their losses from credit card defaulters.

Keep that in mind next time you cheerily swipe that card.

Me? I'm craving a Hot Stove burger.

Thomas F. Schaller teaches political science at UMBC. His column appears every other Wednesday. His email is Twitter: @schaller67.

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