In the latest Congress to see consumer advocacy on travel rewards credit cards, two U.S. senators are investigating “unfair and deceptive practices in airlines’ frequent flyer and loyalty programs,” according to a joint press release.
On Monday, U.S. Senate Majority Whip Dick Durbin, D-Ill., and Sen. Roger Marshall, R-Kan., asked the U.S. Department of Transportation and the Consumer Financial Protection Bureau how they protect consumers from “deceptive marketing tactics” that offer incentives work by hand. expenses generated by cobranded credit cards.
“There are troubling reports that airlines are engaging in unfair, abusive and deceptive practices related to these loyalty programs,” Durbin and Marshall said in a statement. “For example, reports have suggested that airlines are changing points systems in ways that are unfair to consumers, including by devaluing points, meaning more points are needed than initially marketed to achieve the promised rewards.”
Furthermore, the senators allege that airline frequent flyer programs “incentivize consumers to purchase goods and services, obtain credit cards, and spend money on those credit cards in exchange for promised rewards – all while retaining the power to direct consumers at any time.” moment of those rewards. DOT rules allow airlines to change their programs without prior notice to consumers through their terms of service.
About 30 million Americans, or 1 in 4 households, have cobranded airline credit cards, according to data from Airlines for America, a trade group representing major U.S. airlines. According to A4A, airline credit cards will generate $23 billion in economic activity in 2022.
In their letter to the DOT and CFPB, Durbin and Marshall also cited the cost of purchasing points from airlines at a higher value than the points themselves are worth, while highlighting the transaction fees airlines charge for transferring points to partners.
“This means consumers can spend three cents to purchase a point worth approximately one cent,” they said. “This disparity between the value of points at purchase and at redemption can be even more extreme depending on when, how many and even where on the website the points are purchased.”
A CFPB spokesperson confirmed receipt of the letter and said the agency is “reviewing” it.
Durbin-Marshall’s joint effort stems from their Credit Card Competition Act, which they introduced in 2022 to inject more competition into the credit card industry to reduce the fees merchants pay when customers use their credit cards. The bill would direct the Federal Reserve to require credit card issuing banks to provide at least two networks for merchants processing electronic credit card transactions, banning a Visa-Mastercard duopoly.
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This isn’t Durbin’s first attempt at legislation aimed at rewarding credit cards. In 2011, Congress passed the so-called Durbin Amendment as part of Dodd-Frank, a set of financial rules put in place in response to the 2007-2008 financial crisis to prevent future crises. The Durbin Amendment established a flat fee for processing debit card transactions instead of a fee based on a percentage of the total transaction. In response, banks limited the rewards offered for debit card purchases, effectively ending most debit card benefits for consumers.
Opponents of the Credit Card Competition Act have raised concerns that the bill would be applied to credit cards in the same manner as the Durbin Amendment was applied to debit cards, with credit card companies potentially significantly scaling back or eliminating rewards programs due to reduced interchange fee revenue.
“This is not an accident. It is… a calculated attempt to silence and intimidate any American company or American worker who opposes their harmful legislation,” said Richard Hunt, executive chairman of the Electronic Payments Coalition, whose organization is open-hearted. against the bill.
Since the implementation of the Durbin Amendment in 2011, card issuers have lost $106 billion in swipe fees from debit card transactions, according to the Electronic Payments Coalition.
Spokespeople for Durbin and Marshall declined to comment beyond the press release.
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