The Hidden Cost of Credit Card Rewards for Lower-Income Americans.

Economists argue that the rewards credit card system creates an annual redistribution of over $15 billion from less to more educated, poorer to richer, and high- to low-minority areas, widening existing disparities. Low FICO score customers are spending more on these reward cards to get access to the rewards, accumulating debt and causing huge interest payments that go to the bank. Meanwhile, high FICO score customers are only using these rewards but not accumulating any debt, being cross-subsidized in the process of using their reward cards. However, banks argue that rewards cards are designed to be independently profitable and that carrying balances and paying interest are not typically the revenue streams that fund rewards cards.