Among the political ads flooding the airwaves this election season is one from American Free Enterprise Action (AmFreeAction), which describes itself as a Republican business group. It contends that the Credit Card Competition Act (CCCA) would eliminate credit card reward points. Yet the proposed legislation, recently reintroduced by Sen. Dick Durbin (D-Ill.), makes no mention of rewards. Instead, the law would allow merchants to choose from more than one payment network. Its stated aim is to open up the current situation where Visa and Mastercard control 80% of all payments and ultimately reduce costs for consumers.
So how would this eliminate credit card rewards? There’s a certain amount of logic to the argument. A competitive environment would reduce the fees that payment processors collect, lowering their profits and reducing the assets they could direct toward rewards programs.
Opposition to the proposed legislation has been strong. The Electronic Payments Coalition has denounced the legislation, arguing that the effects on credit card rewards programs would not be offset by any kind of meaningful decline in retail prices for consumers. United Airlines and Southwest Airlines have come out against it, saying the legislation could “undermine, if not completely end” their frequent flyer programs.
On the other side, the Merchants Payments Coalition counters that the legislation could lead to lower consumer prices without affecting credit card rewards programs. The group points out that the legislation projects to save $15 billion in swipe fees, which amounts to less than 10 percent of banks’ revenues from the fees.
A similar law was passed affecting the use of debit cards more than a decade ago, and that did end up eliminating most rewards points offered by debit cards. As Brian Riley, Director of Credit Advisory Services and a Co-Head of Payments at Javelin Strategy & Research, has pointed out, the CARD Act of 2009 aimed to reduce interchange fees paid to the card-issuing bank. And it did slash the cost per transaction from 51 cents to 24 cents, costing banks an estimated $15 billion a year in revenue. Retailers promised to pass on the savings to customers through lower prices, yet research has found that retailers pocketed the savings instead.
And the kicker: Riley says the law had the side effect of decimating rewards for debit cards. When the Credit Card Competition Act was first introduced in 2022, Riley predicted, “Their reward programs will dry up, just as they did with debit cards.”
Similar swipe fee legislation has been enacted in other countries without killing off issuers’ rewards programs, although often at reduced numbers. Durbin argues that the European Union limits payment networks from charging more than 0.3% in transaction fees, and that hasn’t eliminated rewards programs. But those rewards are sharply reduced in the EU. To take one example, the Revolut Metal cashback card, offered by a London-based bank, offers 1% for purchases outside Europe, but only 0.1% for purchases inside the EU.
The groups opposing the CCCA clearly have agendas beyond protecting consumer rewards points. But they have a point: The legislation could imperil the programs, or at the very least reduce their benefits. Whether the law would end up benefiting consumers, credit card users who cherish their points should keep a close eye on this.
