The Consumer Financial Protection Bureau (CFPB) and the Department of Transportation (DOT) held a hearing talking about credit card airline rewards programs. The hearing was prompted by the introduction of the Credit Card Competition Act (CCCA). Consumers choose credit cards from companies like Visa, Mastercard, American Express, or Discover. Those companies not only provide the physical card and partnerships with other financial institutions to make banking easier, but they also process the payments. Through the small fees they charge for their services to vendors, they are also able to sponsor immensely popular credit card protections and rewards programs. Consumers naturally flock to the company that provides the best value for their needs and can be trusted to safeguard their sensitive financial information during processing. CCCA would shift that choice from consumers to vendors. Currently, if a customer swipes their Visa card provided by Chase bank, for example, they trust Visa will
process that transaction and the interchange fees charged by Visa will help fund whatever benefits accompanies that credit card. Under the CCCA proposed by Senators Dick Durbin (D-Ill.), Roger Marshall (R-Kansas) and J.D. Vance (R-Ohio), banks would be forced to let the stores decide which processor to use, leaving consumers vulnerable and their rewards program potentially unfunded. There is more explanation below about the effect CCCA will have on rewards programs. What I want to highlight here is fraud protection. By seeking to limit interchange fees – the funding mechanism for fraud protection and card security – the CCCA ignores quickly emerging cybersecurity threats to electronic payments. In 2022, more than 400 million individuals globally were affected by data breaches, due, in part, to retailer negligence. In the same year, $8.8 billion was lost to fraud, an increase of 30 percent over 2021.The average fraud payout per card in 2022 alone was $2,618.

CCCA and Airlines Reward Miles

While many of the assembled panelists and audience commentors at the CFPB/DOT hearing spoke forcefully for the benefits that rewards programs provide to consumers, CFPB director Rohit Chopra and Secretary of Transportation Pete Buttigieg were dialed in on supposed evils stemming from airline-issued credit cards. This isn’t what true consumer protection looks like. The fact is that consumers love airline-branded rewards program. The regulatory project the CFPB and the DOT are engaged in would only rob them of these incredibly useful perks. According to a national survey by Airlines for America (A4A), more than 80 percent of respondents said “that being able to earn bonus reward points for travel through the use of their credit or charge card is very important to them.” A4A estimates that almost a quarter of American households have an airline-issued credit card and that these rewards program “paid for 15 million domestic visitor trips that supported $23 billion in economic activity in
2022.”

What regulators (and members of Congress who support proposals like the Credit Card Competition Act) are actually doing is thwarting consumer choice to further their own policy aims. This campaign is especially troublesome because, besides robbing consumers of rewards benefits, it will likely inflate the costs associated with flying. As the Competitive Enterprise Institute’s Iain Murray notes, air miles sold to banks account for roughly 20 percent of airlines’ revenue. If this revenue stream is dammed up, the result will almost surely be more expensive airfare or fewer flights. But the potential damage goes much further. If people fly less because they have fewer rewards points, airfare costs more, or there just aren’t available flights to take them where they want to go, businesses that rely on tourism for revenue will be harmed greatly. An airport CEO who addressed the hearing put it best. “It's not just about tourism, it's about small business,” he said. This gets at the heart of the
matter: Airline rewards points provide popular and widely accessed benefits to consumers, which in turn stimulate commerce across multiple sectors of the economy, to the benefit of all.

One concern that was raised at the hearing was that (somehow) big airlines’ rewards programs could be entrenching their overall market share, cutting out upstart challengers. These fears, which are dubious on their own terms, miss the fundamental point. First off, it must be noted that the degree to which the airline industry lacks competition is greatly overstated. But more to the point, the best way to bring more competition to air travel is to relax the regulatory shackles that safeguard large incumbents against smaller competitors. Also, there’s irony in the fact that the Department of Justice earlier this year succeeded in blocking a merger between airlines Spirit and JetBlue, which would have better enabled the combined airline to take on far larger airlines. In the end, burdening airline-issued credit cards with heavy regulation – or nixing them entirely – is a bad policy solution in search of a non-existent problem. And like all technocratic proposals, it threatens to impose
second-order harms that will disadvantage consumers, small businesses, and many others. Of course, the credit card industry isn’t perfect – no industry is. But the best way to smooth out these problems is through market forces and consumer choice, not poorly-thought-out regulatory intervention.

The Importance of Credit Card Rewards for Low-Income Households

A new study by the Electronic Payments Coalition (EPC) showcases how low- and middle-income households are acquiring and using credit card rewards at an increased rate. The study (which was based on a survey conducted by EPC) obtained information from credit card issuers, and included data on all issuer-branded consumer rewards cards but excluded data on co-brand, small business, and international rewards cards. One of the main takeaways from the report is clear: contrary to what is being said in support of the Credit Card Competition Act (CCCA), low- and middle-income (LMI) households frequently collect, redeem, and depend on credit card rewards. In some scenarios, these rewards might be even more impactful to LMI households than any other demographic.

Amongst the study’s key findings is the increase in credit card ownership amongst all demographics, and the increase of the number of credit cards offering reward programs. These increases were particularly noticeable in LMI households, where access to rewards credit cards rose from 62.2 percent to 69.2 percent in 2022. With this increase, the share of rewards credit cards offerings is nearly identical amongst the three demographics, with nearly 69 percent of all credit cards offered across all demographics being rewards cards. Another important finding from the study is how cardholders decide to redeem their rewards. According to the survey data, LMI households overwhelmingly redeem cash rewards in comparison to other types of rewards (like travel rewards). For example, 64.3 percent of LMI household’s rewards were cash rewards, with only 23.1 percent being travel rewards. In comparison, middle- and high-income households’ cash redemptions represented 59.6 percent and 53.1 percent of their
redemptions, respectively. Meanwhile, travel redemptions represented 26.5 percent and 34.3 percent of middle- and high-income households’ reward redemptions. These statistics indicates that LMI households are more likely to use their credit card rewards to offset high-sticker price spending like holiday gifts, back-to-school supplies, or mid-year vacations, while middle- and high-income households use their rewards for discretionary spending.

The report also disproved claims made by those who claim that credit card rewards disproportionally benefit high-income earners at the expense of LMI households. As the report highlights, some of the proponents of reward restrictions claim that because LMI households are supposedly more likely to be charged a higher interest rate, the cost of interest will offset the benefits of rewards programs. However, as the report shows, the correlation between risk score and income is nearly negligible, and LMI households do not usually face higher interest rates. The report also tackles the CCCA’s proponents’ argument that interchange fees’ have resulted in higher prices for customers, which would imply that cash and debit card users are bearing some of the costs of credit card users’ rewards. The report highlights that merchants’ benefits from accepting rewards cards usually outweigh their costs, with a net benefit of 5 to 6.4 percent. It also pointed out various cases, both in the United States and
abroad, where restrictions on interchange fees did not translate lower prices at the counter. As noted above, the net benefit merchants obtain from accepting rewards card mean that they rarely need to offset these fees, and when they do, they usually do so through a surcharge that is only paid by credit card owners. This report provides yet another example on how damaging a restriction on credit card rewards could be for the American economy, especially as consumers are increasingly relying on rewards to offset the impacts of recent surges in inflation. According to this study, more than $38 billion in unredeemed rewards could be potentially lost if these programs were to be wound down. This would essentially pull the rug on millions of Americans who are relying in these rewards as a safety net for unexpected purchases, or to take a much needed vacation as the summer arrives.

Blogs:

Monday: Vineland, NJ, Reveals Taxpayer-Funded Broadband Project Plans, But Refuses to Release Feasibility Study ([link removed])

Tuesday: New Study Sheds Light on the Importance of Credit Card Rewards for Low-Income Households ([link removed])

Wednesday: TPA Releases Capitol Hill One-Pager on Credit Card Interchange Fees ([link removed])

Thursday: Ahead of CFPB/DOT Hearing on Credit Card Rewards, Watchdog Group Reminds Officials: Credit Card Rewards are a Lifeline for Many ([link removed])

Friday: Taking Away Credit Card Rewards Would Be A Blow To Florida’s Tourism Economy ([link removed])

Media:

May 3, 2024: The White Mountain Independent (Show Low, Ariz. ) ran TPA’s op-ed, “Delay in authorizing vaping devices takes toll on public health.”

May 3, 2024: NewsExporer.net ([link removed]) quoted TPA in their story, “The eleven states facing 50% capital gains tax because of Biden.”

May 3, 2024: MSN News Singapore quoted TPA in their story, “The eleven states facing 50% capital gains tax because of Biden.”

May 3, 2024: MSN United States quoted TPA in their story, “Eleven States Hit With 50% Capital Gains Tax Under Biden's Plan.”

May 3, 2024: MSN UK quoted TPA in their story, “Eleven States Hit With 50% Capital Gains Tax Under Biden's Plan.”

May 3, 2024: MSN India quoted TPA in their story, “Eleven States Hit With 50% Capital Gains Tax Under Biden's Plan.”

May 3, 2024: MSN Australia quoted TPA in their story, “Eleven States Hit With 50% Capital Gains Tax Under Biden's Plan.”

May 3, 2024: MSN Money Canada quoted TPA in their story, “Eleven States Hit With 50% Capital Gains Tax Under Biden's Plan.”

May 3, 2024: MSN international Edition quoted TPA in their story, “Eleven States Hit With 50% Capital Gains Tax Under Biden's Plan.”

May 3, 2024: Mogaznews.com ([link removed]) quoted TPA in their story, “Joe Biden's raid on the rich: The 11 states where capital gains tax rates would ... trends now.”

May 4, 2024: The Daily Mail quoted TPA in their article, “The eleven states facing 50% capital gains tax because of Biden.”

May 4, 2024: Florida Daily ran TPA’s op-ed, “SEC-Enabled Shareholder Activists Can Potentially Upend The American Economy.”

May 4, 2024: MSN Malaysia quoted TPA in their story, “The eleven states facing 50% capital gains tax because of Biden.”

May 7, 2024: Patrick Hedger appeared on Real America's Voice to talk about the Credit Card Competition Act and IRS funding.

May 7, 2024: Patrick Hedger appeared on KOA 850AM (Denver, Co.) to talk about the Credit Card Competition Act.

May 8, 2024: I appeared on 55KRC Radio (Cincinnati, Ohio) to talk about energy regulations and the Credit Card Competition Act.

May 8, 2024: Florida Daily ran TPA’s op-ed, “Taking Away Credit Card Rewards Would Be A Blow To Florida’s Tourism Economy.”

May 8, 2024: Targeted News Service mentioned TPA in their story, “U.S. Urged to Maintain Global Leadership With Pro-Innovation Laws.”

May 8, 2024: The Blaze ran TPA's op-ed, "The FDA can’t get its story straight about reducing tobacco-related dangers."

May 9, 2024: WBFF Fox45 (Baltimore, Md.) interviewed me about legislation raising taxes on vacant property.

May 9, 2024: WBFF Fox45 (Baltimore, Md.) interviewed me about the cost of tariffs.

May 9, 2024: I appeared on WBOB 600 AM (Jacksonville, Fla.) to talk about the IRS and tax reform.

May 9, 2024: The Courier Journal (Louisville, Ky.) ran TPA’s op-ed, “Watchdog’s warnings about KentuckyWired have come true, taxpayers will soon pay the price.”

May 9, 2024: Townhall.com ([link removed]) ran TPA’s op-ed, “Defying Odds, Biden Figures Out a Way to Make Federal Permitting Law Even Worse.”

May 10, 2024: Issues and Insights ran TPA's op-ed, "The FTC’s Plan To Revive A Zombie Bill Will Undermine America’s Supply Chain."


Have a great weekend!

Best,

David Williams
President
Taxpayers Protection Alliance
1101 14th Street, NW
Suite 1120
Washington, D.C. xxxxxx

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