Proposed Credit Card Legislation Could Threaten Your Travel Rewards
Jul 26, 2023
If when the check comes after a lavish night out, you’re the first to reach for your credit card, you’re my kind of person. Because of your magnanimous nature? No. Because anyone who smacks a bespoke metal credit card down on the table like they’re about to win a round of dominoes is more than likely part of the illustrious “points and miles” gang.
These travel-savvy spenders accrue credit card points and airline miles with each purchase, sometimes with certain categories earning double, triple, or quadruple points for focused spending. The accrued points and miles can then be converted into amazing travel experiences. “I flew first class to Tokyo and stayed at the Mandarin Oriental for 6 weeks. It cost me $6.” That’s the points and miles gambit. Dear reader, the best I have achieved is a peak winter ski season flight to Salt Lake City for $11, but I enthusiastically participate.
Imagine my surprise when the travel reward guru himself, Brian Kelly, The Points Guy, took to his Instagram account to breathlessly proclaim that the government was coming for our precious miles. Oh, hell no! What does Congress have to do with your credit card travel miles? What does a defense bill have to do with credit cards? Will I ever get to the Tokyo Mandarin Hotel for $6? Let’s dig in.
A bipartisan group of senators has proposed a bill that would regulate how the country’s largest credit card issuers process transactions. The Credit Card Competition Act (CCCA) of 2023 would require the country’s largest banks to allow merchants to select from at least two processors for all Visa (V) or Mastercard (MA) credit transactions.
Visa and Mastercard account for 80% of U.S. credit-card transactions. The rest probably consist of random gift cards that you have in the junk drawer at your house. Why do I have a $25 gift card for Papyrus? Anyway, when you swipe your card, the Visa/Mastercard duopoly processes the transaction on behalf of the issuing banks. Oh, that’s awfully nice.
For their kindness, Visa and Mastercard take 1.5% to 3.5% of the sale price. Some of that money goes to Visa or Mastercard, some goes to the issuing bank. Because the Visa and Mastercard duopoly is a two-headed credit card behemoth that controls most of the market, they can charge the exact same transaction fee to all banks that issue their cards. Therefore, merchants don’t have any negotiating power. “Where ya gonna go, shopkeeper? Gonna start accepting bitcoin?” **evil laugh**
So, Congress being Congress wants legislation. The CCCA would require the country’s largest banks—those with assets over $100 billion—to allow merchants a choice of credit card processors for Visa/Mastercard transactions. Congress is confident that this legislation would reduce processing fees for merchants, which could then pass savings on to consumers. We all know that is how it always works. Companies save money and immediately pass those savings on to consumers. I mean, I scan and bag my own groceries and when I’m done, I get a nice little paycheck … wait a minute.
In news posts about this legislation, some hypothesize that a reduction in revenue from transaction fees due to a more open and free market would make loyalty programs less lucrative to banks issuing those cards.
Furthermore, hotels and airlines, from which the banks purchase loyalty points and miles, would also see reduced revenue. That, in turn, would cause the airlines and hotels to make up for that shortfall with higher airfares or room rates. Also, Timmy, it would cause your dad to have to work harder to make more miles and then your mom would be sad. I’m so sorry Timmy, your parents are getting a divorce because of Visa/Mastercard. A lot of the loudest voices opposed to the legislation have the most skin in the game, making a living off points/miles recommendations and credit card sign up bonuses, but there is a precedent.
An amendment to the 2010 Dodd-Frank Act imposed significant limits on the processing fees banks could levy on debit-card transactions. Banks responded by raising fees in some instances and ending debit-card reward programs altogether in others. In the fallout, banks did take a revenue hit- Cardhub.com (the second most popular hub on the internet) estimated that the amendment cost U.S. banks $8.4 billion in annual fee revenue. Don’t worry you guys, I have insider knowledge that the banks are doing okay now. JPMorgan Chase Bank (JPM), one of the largest issuers of travel rewards cards, recorded a net income of $136 billion in Q1 2023. The banks are fine, but the debit-card-based reward system is DOA.
Luckily, the CCCA doesn’t propose a cap on credit card processing fees the same way it did for debit cards. The act merely wants the nation’s largest banks to give merchants a choice between competing processors. Opponents of the bill—financial service companies, travel companies, bloggers, points and miles gang—say that merchants will end up pocketing their newly realized savings instead of passing them on to consumers. Meanwhile, the trade organizations representing merchants like Target (TGT) and Walmart (WMT) claim the banks are colluding with Visa/Mastercard to keep processing fees high.
In response to some of the more alarmist claims that points and miles are going away overnight, some are saying to look across the pond. In the EU, bank interchange fees are capped at a much lower 0.2% of the transaction amount for debit cards and 0.3% for credit cards. Despite the merchant-friendly fees, European banks still issue credit cards that earn travel rewards.
American Express (AXP) is exempt from the legislation because they’re both the issuer and processor for their cards. I mean, I get this argument but I’m also gonna call this the “pharmaceutical paradox.” Drugs are cheaper abroad because they’re subsidized by higher prices here in America. I think a global flattening of processing fees would have a more detrimental effect. Also, Europeans get vacation time to use all their points and miles so shut up Stacy about your trip Mykonos.
Last week, Senators Richard Durbin (D-IL) and Roger Marshall (R-KS) filed the CCCA, as an amendment to the National Defense Authorization Act (NDAA), which the Senate is expected to vote on in the coming weeks. CCCA to the NDAA, LBJ took the IRT, and I’m down with OPP.
Senators Durbin and Marshall continue to push hard for the amendment to remain attached to the NDAA. The banks have been spending millions this week alone to block a vote—the president of the American Bankers Association has even said that they “will spend whatever is needed” to block a vote on the CCCA.
The NDAA authorizes Department of Defense activities for the fiscal year and addresses other issues of importance to national security. The CCCA’s attachment to the Defense Bill is due addressing “national security issues” surrounding credit cards. I didn’t know the tile I bought at Home Depot was a national security issue. Senators say the CCCA would provide a better safety net to our payments system if hacks or outages occurred. Sure, Jan.
Currently, the Senate CCCA bill, also with backing from Sen. Peter Welch (D-VT), has been referred to the Senate Committee on Banking, Housing, and Urban Affairs. As for the companion House bill 3881, it has attracted four cosponsors, three Republicans and one Democrat, and has been referred to the House Committee on Financial Services. We must now decide if travel rewards programs are reason enough to kill legislation that would open the marketplace for credit card processors and give merchants more transparency. What I can say for certain is that no corporation, be they a big bank or large merchant, really cares about passing cost reductions to the consumer. And me? I’m just trying to get to Tokyo for $6.
You can weigh in on the debate here:
Pro Credit Card Act: https://www.votervoice.net/NACS/Campaigns/106784/Respond
Anti-Credit Card Act: https://handsoffmyrewards.com/
Vonetta Logan has more than a decade of markets experience and has been a trader for five years. She is an on-air personality, creative writer and news correspondent at tastylive, She appears Monday-Friday on Daily Dose and contributes to Luckbox Magazine. @vonettalogan
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