I don't think it is true that getting rewards happen at the expense of the average Joe. The rewards are taken out of the merchant fees; if the credit card companies didn't make at least a small profit on us pay-on-time reward maximizers they wouldn't give us credit cards.

That said, I do think the whole system with merchant fees leading to rewards is a bit screwed up. It would seem that in this day and age the merchant and I could make a deal where I got a few percent discount and he was paid directly out of my bank account (~debit card), thus cutting out the credit card middle man. For reasons I don't understand, however, it is illegal for merchants to charge more for customers using credit cards, even if they have to pay steep fees.

That being the case, it normally isn't possible to get a cash discount directly so we frugal optimizers have to use a credit card for the cashback and rewards, even though we have no need for credit.

It is probably due to 50% (give or take a few percentage point) of consumers who use CCs, carry the revolving debts - in other words, about 1/2 of the credit cardholders spend what they cannot afford to pay off each billing cycle, let alone using CASH (debit card) to pay for what they buy.

So the cash discount become a "discrimination" to about half of the consumers.

I agree with your last paragraph - this is the few ways we the financially responsible folks can actually get some rewards to our good behavior, in a society that seems to constant reward BAD behaviors. (think the bail out of the banks and the housing market as the prime examples).

Why would you care about how others think of you? Your self-esteem does not rely on how others see you being smart, I hope.

As for the ethic front, others have offered lots of good arguments. I would add one more, we the financially responsible folks taking advantage of the marketing gimme from the banks, are far more ethical than those who took out Liar Loans to buy houses they could never afford and then default on their mortgages while blaming the banks and the society for their failures. (not to say the banks are not guilty, they are. But the homeowners who bought what they could never afford thru creative financing are just as guilty as the banks which loaned them the money.)

Right on!

I can't think of a business that practices in a more unethical way than credit card companies. How ethical is a 33% interest rate for example? Things happen to people (not all people in debt are stupid) and credit card companies show no mercy. In my opinion, I am doing the ethical thing by turning the tables and taking money from them that is freely offered.

No sermon was offered, just a point of view. Opinions are welcome here.

Here, here! (Or is that "hear, hear!"?) Anyway, well said!

So true. Consider the fact that the recently passed CARD Act, which reduced interest rates banks can charge, has opened up a huge can of ingenious new fees and fines (see WSJ.com). The irresponsible masses whined and bleated to their congresscritters so that those of us who never carry a balance would feel some of their pain.

Increasingly, we will see mileage/cashback programs and the like discontinued as banks spread the hurt. So of your conscience bugs you don't worry too much, pretty soon your financial responsibility shall be properly punished.

I've got a couple - how about the cell phone business, and the tobacco industry.

definitely the cell companies....see the new at&t commercial where the guy is try to get away from the authorities using the GPS on the phone lol

I don't follow your logic. Companies pay for the miles, which as you correctly state becomes a cost of doing business, however they are getting something in return. They are getting your attention, your loyalty, your revenue. It might be in fees or sales now, it might be in advertising revenue later; it may take many forms. As for capitalizing on the stupidity of others... you might be in a position where the company spends more on you than you give them in return because there are enough other people who generate more revenues than they cost, but you aren't harming those people.

How is it unethical? If I'm willing to let you borrow money for 50% APR plus a $10 transaction fee, how am I being unethical if you have the opportunity to simply say "no thanks"? Banks aren't in it for philanthropy; they are profit-seeking entities, and perfectly entitled to be such. If none is willing to offer you a rate or fees that appeal, then don't use their products.

I agree. Banks need to be compensated for the risks they are taking by offering these people credit. For that reason, I believe the interest they charge is fine. What starts becoming unethical are the ways additional fees are assessed that seems to not cover cost of doing business but are sneakily added to bolster banks' bottom lines.

Excluding fraud (for example, not informing you of fees and charging them without permission), why would fees that are purely intended to increase bottom lines beyond break-even unethical? Banks should be trying to charge you as much as they can without losing their edge to competitors who might be willing to undercut them. More fees aren't always better... charge too many and customers will go elsewhere and/or reduce their activity level... but this is very distinct from being unethical.

I think of them as kickbacks.

If I'm negotiating a contract for my company and a vendor slides me a duffel bag with a 10% cash bonus under the table, that's considered unethical and likely illegal.

FF miles and hotel points aren't much different. I agree to consolidate my business travel with one vendor, and I get a nice personal kickback for doing so. It doesn't matter whether another vendor has a cheaper flight or room. Once I'm on the "status train", I'm not getting off.

Fortunately, the FF game is now so embedded in modern business travel culture than as long as a few common corporate travel policies are followed, the whole game is considered acceptable. Since it doesn't have to be hidden, it's generally considered ethical with perhaps a few gray areas...

Nail on the head ^. That is exactly why banks are doing it as well. Although we all would never -ever- have a late payment or leave a balance on a card, the banks are confident that one or two of us will slip up. All they need is you to do it once and they likely break even, twice and they start making money.

The use of FF programs as described by pinniped above does have some ethical issues. But regarding "taking advantage of the Average Joe" because he is enticed by the offer of miles but doesn't successfully exploit the opportunity is not an ethical problem, as far as I can tell. Joe would not benefit, as far as I can see, if you did not exploit the miles opportunity, and he does not suffer more because you do use the miles. As far as I can tell. Someone else may be able to enlighten me...