In the study, titled “Who Gains and Who Loses from Credit Card Payments?” researchers Scott Schuh, Oz Shy and Joanna Stavins concluded that credit card fees and the rewards programs they pay for make income inequality worse by transferring wealth from the poor to the rich.

“Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or ‘cash’) users,” the paper said.

The answer to the problem is easy, according to the researchers: “Reducing merchant fees and card rewards would likely increase consumer welfare.”

Poor Consumers Lose Out

The reason less well-off consumers suffer as a result of credit card rewards is the fact that issuers and merchants don’t charge higher prices to only those who reap the rewards, but to everyone.

The Federal Reserve Bank’s study spells it out simply. The average cash-using household pays $151 annually to usually more wealthy card-using households. Over the course of a year, the average card-using household receives a boost of $1,432 each year from credit cards rewards via cash-using households.

On average, the lowest income households in America ($20,000 or less income per year) pay $23 to the system each year while the wealthiest households ($150,000-plus per year) receive $756 annually.

Card Rewards Usually Benefit Rich

High-income consumers are 20% more likely to earn credit card rewards through expensive purchases. On the flip side, banks earn 83% of their credit card fees from low-income cash payers who are less likely to utilize the rewards programs they are paying for implicitly.

Next time you cash in those frequent flyer miles, remember: You might not be the only one who worked for your reward.

The Chase Freedom Credit card comes with APR between 12.99% and 22.99% and carries no annual fee. You can redeem the following cash back offers as a Freedom cardholder:

Chase Cash Back

$100 Cash Back

• You must spend $799 within the first three months of applying for the Chase credit card
• The $100 comes in bonus rebates, which can be redeemed for a $100 check.

5% Cash Back

• Receive 5% cash back on gas, home improvement and department store purchases.

Up to 20% Cash Back

• When you shop online at select merchants using the Chase Freedom card you will be eligible for up to 20% cash back on those purchases.

If you are looking for a new credit card and these rewards appeal to you, click here for more information.

Living off Points

Earning miles or points can really be exciting when the time comes to go on a vacation and they let you travel for free, but for one homeless man in California these points have allowed him to stay off the streets, living in hotels while he looks for a job.  Jim Kennedy, 46, an IT and Finance specialist, lost his $120,000 job after he helped his firm acquire one of their major competitors. During his time at that job, he racked up a number of rewards points which he now uses to get himself a four-night stay at a Holiday Inn Express.

Kennedy told ABC News that he is had been living off his points ever since he had to foreclose his home due to lack of payments back in mid-January. In total his loyalty points are about 85,000 with Starwood Preferred Guest, 400,000 with Hilton Honors, 100,000 Delta Sky Miles, 120,000 American AAdvantage, 200,0000 United Mileage Plus, and 125,000 American Express Membership Reward points. Kennedy went on to say that he believes he has enough points to survive for another 3 months.

Start Earning Rewards Now

If you currently do not collect rewards, but travel or frequently buy everyday necessities such as food and gas, you may be missing out on a opportunity to earn your own points. To check out the best rewards cards available try our Credit Card comparison tool.

Credit Cards, Photo by Galib A.

And no, the Credit Card Act of 2009 doesn’t make plastic any safer now as compared to previous months. It only means that credit card companies now have to find more innovative ways of making up for lost revenue. For instance, Bank of America recently announced it will be imposing annual fees ranging from $29 to $99, right after saying it won’t be raising interest rate hikes before the second phase of the CARD Act goes into effect on February 2010.

Now on top of all these rate-hiking, fee-adding, and credit limit-cutting, card issuers have found another way to improve their bottom line – making changes in how a credit cardholder can avail of rewards points. These policies have become  so stringent that for many consumers, it means saying goodbye to in-flight upgrades, free hotel stays, or that “something” they’ve saved up for and looked forward to.

If you aren’t yet aware of any changes made to your credit cards rewards program, you might find your answer in the following updates:

• Most major credit card companies including American Express, Bank of America, Chase, Discover, Capital One and Citibank will invalidate any rewards points accumulated in a billing cycle during which a cardholder’s account was delinquent.

• Discover Bank goes a step further by revoking all point or miles earned by an accountholder under the rewards program if he is late in his payments for two consecutive months.
• Discover’s three-tier cash back program is now down to just two tiers. In the company’s previous scheme, a consumer earns 0.25% percent for the first $1,500 spent, 0.5% for the next $1,500, and 1% for whatever amount spent above $3,000. Presently, the program has been reduced to just 0.25% for the first $3,000 and 1% for anything over that.

• American Express scaled back the rebate for its Blue Card cash-back program, now offering 1.25% instead of the previous 1.5%.

• American Express is also increasing the maximum fee that accountholders under its Membership Rewards program would need to shoulder to transfer earned points to a U.S. airline loyalty program. From $75, the cost is now at $99 effective last September.

• Citibank has also made changes to its travel redemption program. A domestic round-trip airline ticket worth about $400 used to cost the cardholder 20,000 points. Now redemption for the same item will require 40,000 points.
• Starting next year, the Citi Hilton HHonors Visa will require 12,500 points, up from 10,000, for a free room.
• The Citi Home Depot Rewards MasterCard will be discontinued. Cardholders can only use them until October 31, while rewards points may be redeemed only until January 31, 2010.
• The Citi mtvU Visa card, which allows students to earn points that are convertible to cash for student loan payments, now requires 12,700 points for every $100. That used to be 10,000 points.

What could come as an even more unpleasant surprise for credit card customers is that card issuers have the right to change the terms and conditions of their rewards program – or even cancel it altogether – at any time and for any reason.

And don’t expect these changes to go away anytime soon, because they’re not. As banks need to make difficult decisions about balancing profitability and service, consumers also need to act fast and cash in on their rewards points while they still can.

Chase Freedom is Chase’s most popular rewards credit card, offering members the ability to redeem gifts and much more with Ultimate Rewards, viewable at chase.com/ultimaterewards.

In addition, the new program gives account customers ten percent more points for every dollar they spend with the Chase Freedom credit card and ten bonus points for every purchase. These points can be converted to cash, gift cards, travel bookings, and various goods. Customers can receive unlimited points on the no-annual fee card and the reward points don’t have an expiration date. Best of all, new customers receive 1,000 bonus points after their first purchase.

So if you’re not signed up yet, get on the reward-wagon, and register at www.chase.com/exclusives, so you can start reaping from the benefits today.