Federal regulators are taking a closer look at the points and miles consumers earn on credit cards, and this scrutiny could help cardholders get more bang for their buck.
The Department of Transportation and the Consumer Financial Protection Bureau are considering possible regulation of credit card rewards systems and related frequent flyer programs, officials said Thursday during a joint hearing held by the two agencies.
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CFPB Director Rohit Chopra and Transportation Secretary Pete Buttigieg criticized the program as increasingly complex, confusing and opaque to consumers.
“It’s clear that these programs contain significant value. Like anything of value traded in our economy, it’s important that it is treated fairly,” Buttigieg said at the hearing. I said this at the meeting. “The value of points depends on the company issuing them.”
in report In a paper released Thursday morning, the CFPB said credit card rewards programs have “many problems, including limited redemption opportunities, hidden and complex terms, and rewards being devalued or denied even after the terms have been met.” announced that they had discovered a problem.
In its report, the CFPB said it evaluated hundreds of consumer complaints related to the program.
Richard Hunt, executive chairman of the Electronic Payments Coalition, a lobbying group for banks and payment networks, said the hearing regulate credit cards And that can impact your rewards program.
“Millions of Americans, especially low- to moderate-income Americans, rely on credit card rewards to pay for groceries, gas, back-to-school supplies, and travel to see loved ones,” Hunt said. he said in a statement. He added that partner airline card benefits are used by 30 million Americans and have the potential to generate $23 billion in economic activity.
Both the CFPB and DOT have been cracking down on business practices in the credit card and airline industries over the past few months.
Last week, the Department of Transportation announced new rules requiring airlines to provide cash refunds to travelers if they cancel or make other “substantial changes” to their flights.
The CFPB finalized rules setting the cap in March. credit card late fee The price is $8, a fraction of what most publishers typically charge. Chopra told reporters the same month that the agency would take a closer look at the benefits program after an increase in consumer complaints.
Why are regulators interested in frequent flyer miles?
Buttigieg said during the hearing that credit card rewards programs have become a key part of airline business models.
Airlines sell flight miles in bulk to credit card issuers, who then offer them as rewards to cardholders.
“The major airlines are making a ton of money off these programs,” said David Slotnick, The Points Guy’s senior airline industry reporter. “They can and do make more money from these frequent flyer programs than they can from flying.”
Dave Grossman, founder of credit card rewards website MilesTalk, said such programs have become more difficult for customers to navigate in recent years.
Grossman said airlines have in the past published award tables where customers can see how many miles they can redeem for a particular flight.
“That’s been good for consumers,” he said. “They know that if they can save up X miles, they can do Y with it.”
But nearly all airlines have eliminated that practice, Grossman said. Currently, the number of miles a customer needs to cash in on their desired flight is determined by a more dynamic behind-the-scenes system.
This allows more customers to actually secure seats on the flights they want to book with benefits, he said. But it also means frequent travelers aren’t notified when the pricing system changes, and their award miles can change or become less valuable without them knowing. Masu.
“Currently, consumers have no protection against these price cuts,” Grossman said.
One consumer wrote a letter to the CFPB stating that the issuer had recently increased the miles required to redeem a $100 gift card by 25%.
“I have accumulated these miles over the years,” the complaint said. “I want to know what the miles I’ve accumulated are worth based on what I agreed to when I got the card.”
According to the CFPB report, customers can also be burned in other ways. Another consumer said he encountered a technical issue with the airline’s website when transferring points from his card issuer and completely lost his flight miles.
The cardholder filed a dispute with the bank, but ultimately could not get the points back. “Customers literally have no protection whatsoever once they initiate a transfer,” the consumer wrote.
Chopra said during the hearing that the CFPB will consider ways to help consumers feel confident that the points and miles they earn can actually be used as advertised and communicated.
Airlines of America, the airline industry lobbying group, said there is “intense competition” in the airline rewards industry and that the program is “widely popular” among consumers.
“When choosing an airline for air travel or a credit card for spending, consumers have a wide range of options and the choice to choose the one that best meets their needs,” a spokesperson for the organization told MarketWatch. ” said in a statement.
Morgan Harper, director of policy and advocacy at the American Economic Freedom Project, said benefits programs are not inherently harmful to consumers. But current airline rewards systems function less like a “buy her 10 coffees, she gets one free” card and more like their own currency markets, she said. I did. This means some regulation will be needed to protect consumers.
“This is a bit of a scam when the value of benefits can change overnight and the promises made when signing up for these programs are not being fulfilled,” she says.
What will happen to credit card benefits in the future?
Experts told MarketWatch that major changes to frequent flyer and credit card rewards programs are unlikely to be imminent.
Buttigieg said during Thursday’s hearing that the CFPB and DOT are still working to understand the issue and have “not reached a conclusion” on regulatory next steps.
“My gut feeling was that this was the first step in a long review process,” Grossman said.
It is also unclear whether either agency has the authority to regulate the airline rewards industry.
If a government agency moves to regulate the program, Harper said, regulators could either make the value of reward points more clear to customers or help smaller airlines and banks implement larger rewards programs. It is likely to focus on addressing anti-competitive practices that prevent companies from providing
One thing is clear: eliminating airline benefits entirely is off the table.
“Rewards programs are popular,” Harper said. “However, today’s hearing found that many consumers may not even realize how unfair these programs are and may reduce the value of the points they earn. .”
