Are Your Credit Card Travel Rewards On the Chopping Block? Airlines Take To The Mattresses

by Robert McGarvey

In a typical year, maybe 25% of us redeem credit card rewards for travel – but about the same number don’t redeem their card rewards for anything in that year.  Some probably are accruing points to redeem for a splashy something but others probably will never redeem the points. Keep that indifference in mind as you read on.

Meantime, both Visa and MasterCard have entered into a consent decree that will reduce so called swipe fees (aka interchange) by some $30 billion.  Merchants paid around $72 billion in interchange fees in 2023  so that $30 billion is a big chunk of the money that’s involved.

But there would be still more cuts if Senator Dick Durbin’s Credit Card Competition Act were enacted into law.  

Here’s what the CCC would do: “The Credit Card Competition Act of 2023 would enhance credit card competition and choice in order to reduce excessive credit card fees. It would require the largest credit-card issuing financial institutions in the country—those with assets over $100 billion–to enable at least two credit card networks to be used on their credit cards instead of just one, and at least one of those networks must be a network other than the Visa/Mastercard duopoly.”

Big merchants – WalMart – like the CCC and very much want to use low fee pipe to process card charges. 

Durbin of course is an enemy of long standing of airline loyalty programs which he sees as contemporary variations of the three card monte that used to be played on tourists in Times Square.  Said Durbin a couple months ago: “For years, airlines have profited from employing deceptive and unfair practices within their frequent flyer and loyalty programs.” Ouch. But what he says is true.

And now the U.S. Travel Association – a lobbying organization funded primarily by huge travel companies such as Amex, Marriott International, Visit California and United Airlines – has produced data that, reports Travel Weekly, “shows that even a 10% decrease in travel booked via credit card rewards would mean 1.5 million fewer trips and $4.3 billion in lost economic activity for local travel businesses.”  (Note: The USTA has not taken a formal position on the CCC.)

What’s missing here? A good argument that if a significant chunk of credit card processing were switched onto low cost rails that generate less fee income for credit card issuers card rewards would significantly decrease. That causality is assumed…but there’s absolutely no proof it would happen. When Europe moved to shift more card processing to low cost rails a decade ago, the same fears were trucked out by travel groups – airlines in particular – but the rewards continued, said the National Retail Federation in a March statement.

There’s no reason to think that, were the CCC enacted into law, that, poof, the credit card rewards we accrue and use would instantly vanish.  They won’t.

Might awards begin to require more points (or miles) and be harder to claim? Almost certainly that’s probable – but that’s because in every recent years good rewards (such as international flights) have gotten pricier.  That’s happened without CCC.  It will continue happening because, remember, we are playing three card monte with a dealer who never loses. Never.

Fear mongers point to the 2010 enactment of other Durbin legislation that capped debit card fees. Said Brian Kelly, founder of The Points Guy, at a Washington DC event sponsored by the US Tourism Economy Alliance to stir up opposition to CCC, “Debit card rewards disappeared, literally overnight.”

True enough but, again, there’s no proof that what befell debit cards would happen to credit cards which are entirely different financial instruments and that produce a variety of income streams for financial institutions that issue cards – such as interest income on card balances and annual card fees. In 2022, according to CFPB, card issuers pulled in $130 billion in interest and card fees.  The issuers won’t be hurting if their interchange income is cut a bit.

Bottomline: put away your worry beads.  Legislation won’t take away your credit card travel rewards.

In March this blog featured a piece Will Shrinking Credit Card Swipe Fees Mean the End to Rich Rewards for Us?  That piece looked at the expected impacts on rewards of the Visa/MasterCard cuts of interchange fee – slim to none in my estimation.