The UK’s largest credit card provider has announced that it will no longer offer cashback rewards, labelling them "unsustainable", after a new EU law was passed last month.
It is thought that other companies may follow Capital One’s decision, significantly curtailing customers’ air miles and cash bonuses in response to legislation from Brussels.
The European ruling will cap so-called ‘interchange fees,’ charged by card issuers to retailers when a debit or credit card is used as payment.
Money reaped by the companies – such as Capital One – under this system allow them to offer customers savings or discounts.
But the European Commission claims the practice, which can be as high as 1.5 per cent on every transaction, costs retailers across the Eurozone EURO9 billion annually.
The new rules, due to pass into law later this month, would see costs capped at 0.2 per cent for debit and 0.3 per cent for credit transactions.
In response, Capital One said in a statement to The Independent that it’s cards, which pay customers up to 5p for every £1 per transaction, were “no longer sustainable”.
With immediate effect, the company has removed the cards from sale and told existing customers that from 1 June the amount earned would be less.
Industry experts suggest that the loss to card issuers could amount to as much as £2.4 billion and although UK retailers will benefit from the legislation, there was no guarantee that these savings would be passed on to consumers.
Moneysupermarket expert Kevin Mountford said: “This is a classic case of regulators, in this case European, trying to act with the consumer in mind, only for the policy to come back to bite the very people it was supposed to help.”
"Its new rules won't just hit cashback cards, all loyalty programmes are at risk because something will have to give when card companies are squeezed," Mr Mountford told The Daily Telegraph.
There are an estimated 95.7 million debit and 61.7 million credit cards in circulation in the UK.Reuse content