The future of airline miles and hotel points is facing new headwinds as the credit card industry braces for potential regulatory changes championed by former President Donald Trump. While a proposed 10% cap on credit card interest rates has garnered attention, a separate measure – the Credit Card Competition Act (CCCA) – is emerging as a potentially more significant threat to rewards programs.
The CCCA, which has bipartisan support, aims to introduce competition into the credit card payment processing network. Currently, Visa and Mastercard dominate the market, controlling interchange rates – the fees merchants pay to card-issuing banks. The bill seeks to require credit card networks to offer at least two routing options for transactions, including lower-cost alternatives. While proponents argue this will save merchants billions of dollars annually, analysts warn it could significantly reduce the revenue banks and card issuers rely on to fund lucrative rewards programs.
According to a Bernstein analyst, Swipe fees impact the fountain from which all loyalty dollars flow,
highlighting the direct link between transaction fees and rewards. The concern is that reduced interchange fees will shrink the pool of money available for banks to offer points, miles, and cash-back rewards. This could lead to diminished benefits for consumers, particularly those who strategically utilize credit cards to maximize rewards.
The potential impact isn’t uniform across all cardholders. Initial analysis suggested the 10% interest rate cap, if enacted, would disproportionately affect lower-income spenders, while high-spending customers would likely continue to benefit from rewards. However, the CCCA poses a broader risk, potentially impacting even affluent consumers who frequently use credit cards for travel and other high-value purchases.
A recent court ruling has also added complexity to the landscape of credit card processing fees. A landmark judgment, handed down on an unspecified date, has altered the structure of interchange fees and merchant account agreements. This ruling, while potentially saving businesses money, further pressures the existing revenue streams of card networks and issuers.
The Federal Reserve’s regulation capping debit card “swipe fees” has also faced legal challenges. In , a U.S. Judge upheld the Fed’s rule, representing a win for the board and a continuation of efforts to control transaction costs for merchants. This decision underscores the ongoing scrutiny of interchange fees and the broader push for greater transparency in the credit card industry.
Senators Roger Marshall, a Republican from Kansas, and Dick Durbin, a Democrat from Illinois, are key proponents of the CCCA, having reintroduced the bill on . Their efforts to attach the CCCA as an amendment to the Guiding and Establishing National Innovation in U.S. Stablecoins Act (GENIUS Act) represent a strategic maneuver to advance the legislation. The GENIUS Act, initially enjoying bipartisan support, aims to regulate the cryptocurrency market. However, the addition of the CCCA has prompted some senators to reconsider their support for the broader bill.
The potential consequences extend beyond individual consumers. Airlines and hotels, which have built extensive loyalty programs around credit card partnerships, could also be affected. These businesses rely on the co-branded credit card revenue to offset costs and incentivize customer loyalty. A reduction in rewards could diminish the appeal of these programs, potentially impacting travel and hospitality spending.
The debate over credit card fees is not new. Merchants have long argued that interchange fees are excessive and lack transparency. The current regulatory push represents a culmination of these concerns, driven by both political pressure and a desire to lower costs for businesses and consumers. However, the unintended consequences – particularly the potential erosion of rewards programs – remain a significant concern for the credit card industry and its customers.
The future of airline miles and hotel points now hinges on the fate of the CCCA and the broader regulatory environment surrounding credit card processing. While the outcome remains uncertain, the potential for significant changes is undeniable, signaling a period of disruption and adaptation for both consumers and the financial industry.
