The bill aims to limit credit card transaction fees, but many worry that it will destroy points and miles.
A bipartisan group of senators has proposed a bill that would regulate how the country’s largest credit card issuers process transactions, in an effort that could have wide-reaching implications on travelers who collect loyalty points. The Credit Card Competition Act of 2023, which also has a companion bill introduced in the House of Representatives, would require the country’s largest banks to allow merchants to select from at least two processors for Visa or Mastercard credit card transactions.
The Problem the Bill Is Trying to Solve
Visa and Mastercard account for over 80% of U.S. credit card transactions. Visa/Mastercard are processors for banks that issue the cards, so when a card is swiped, Visa/Mastercard process the transactions on behalf of the issuing banks, charging a fee of between 1.5% and 3.5% of the sale price, some of which is retained by Visa/Mastercard, some of which is paid to the issuing bank. Because Visa/Mastercard controls such a large share of the market, and charges the same transaction fee for all banks issuing Visa/Mastercard cards, merchants have little power to negotiate the fees.
The legislation 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. The bill’s sponsors say that the regulation would reduce processing fees for merchants, who could then pass savings on to consumers.
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So, What Does This Mean for Loyalty Points?
Some news outlets have picked up on this legislation, claiming it would spell the end for travel loyalty credit cards issued by many banks, because the lower revenue from transaction fees would make the programs less lucrative to banks issuing such cards. Hotels and airlines, from which the banks purchase loyalty points and miles, would also see reduced revenue, causing them to make up the revenue shortfalls with higher airfares or room rates.
Some of the loudest voices in opposition to the legislation are bloggers and travel media outlets that (checks notes) base their business model on promoting travel credit cards. Brian Kelly, founder of the website The Points Guy, minces no words, “This law, if passed, would be destructive for our lucrative rewards ecosystem, and it would take away value from consumer pockets to pad retail corporate profits.”
Are Points and Miles Really in Danger of Going Away?
Kelly appears to base his assertion on an amendment to the 2010 Dodd-Frank Act, which imposed significant limits on the processing fees banks could levy on debit card transactions, which had up to that point been unregulated. Banks responded by raising some fees and ending some reward programs for debit card users. Banks did have a revenue hit—Cardhub.com estimated that the amendment cost U.S. banks affected by the amendment some $8.4 billion in annual fee revenue. The banks, however, appear to have recovered. One of the largest issuers of travel rewards cards, Chase Bank, recorded a net income of over $136 billion in early 2023.
But not all banks ended debit card incentives. While Chase Bank retired their debit card that earned airline miles, Bank of Hawaii, a regional bank that is still large enough to be subject to the amendment, continues to offer a debit card that earns airline miles on certain checking accounts.
The legislation doesn’t propose a cap on credit card processing fees the same way it did for debit cards—only that the nation’s largest banks give merchants a choice between competing processors, who would ostensibly offer more competitive rates. Opponents of the bill—generally those in the financial services and related industries, including some travel companies—say that merchants will pocket savings instead of passing them on to consumers, while trade organizations representing merchants claim that the banks are colluding with Visa/Mastercard to keep processing fees high.
It’s also worth noting that credit card processing fees are significantly lower in the European Union, which has by law capped processing fees (called interchange fees) at a much lower 0.2% of the transaction amount for debit cards and 0.3% for credit cards. In spite of this, European banks still issue credit cards that earn travel rewards with major global travel companies, and so do card issuers like American Express, which is not subject to the proposed legislation because they’re both the issuer and the processor for their cards.
Changes to credit card rewards aren’t the only doom-and-gloom scenarios portended by some publications. A Forbes article mused the effects of the rule could be as far-ranging as driving sales tax revenue shortfalls for states and cities, causing banks to restrict credit and raise fees, or travel companies making reward credit cards or programs less lucrative for consumers, or raising airfares and hotel room rates.
A bigger question might be whether protecting credit card travel reward programs are enough reason to effectively kill legislation requiring more competition among credit card processors for all card types.