Biden watchdogs probe popular credit card and airline rewards

Credit card and airline perks are hugely popular among Americans, but Biden administration officials say aggressive marketing techniques and the dominance of industry giants could be hurting competition and consumers. Concerned about sexuality.

The Consumer Financial Protection Bureau (CFPB) and the Department of Transportation spoke at a joint hearing Thursday on the impact and challenges facing these benefit programs, which Transportation Secretary Pete Buttigieg called “an important part of our savings.” We asked industry executives and consumer advocates about the issue.

There are approximately 550 million credit cards in circulation in the United States, and CFPB Director Rohit Chopra said in his opening remarks that “credit card benefits play a central role in the industry’s marketing gambit.” Stated.

Airlines and credit card companies encourage customers to sign up for their cards by dangling hefty points packages worth hundreds of dollars and perks like airport lounge access on new signups.

But Chopra said the agency’s initial review of “all the little details” shows that issuers are “making it more difficult to redeem points, limiting redemption options, and jacking up point prices on products and services.” “We found that this could quickly and dramatically reduce the value of points.”

After Scott DeAngelo, Allegiant’s executive vice president and chief marketing officer, said in his opening remarks that a point is worth a penny, Buttigieg said a $9 sandwich on a flight would cover 1,100 miles, or about I asked why it cost $11.

Major U.S. banks paid out $68 billion in credit card benefits in 2022, while credit card issuers collected a record $130 billion in interest and fees, a report says. CFPB Report It was released last fall. The report highlighted the risk of consumers choosing cards with high APRs just for the points and perks, only to end up carrying a balance.

With total credit card debt at an all-time high, exceeding $1.1 trillion at the end of last year, Chopra said issuers are looking at ways to “attract customers with features other than the actual cost of credit. There are good reasons to question the country’s focus on The interest rates and fees they charge. ”

“By design, these programs often discourage customers from choosing the lowest-priced item, whether that price is the airfare of a flight or the annual fee or interest rate on a credit card. We want to make sure we understand the impact. Compensation programs affect competition and market behavior,” Buttigieg said.

The hearing is the latest effort in the Biden administration’s fight against junk fees, which critics say are hidden costs and unexpected fees.

The CFPB and other agencies are cracking down on junk fees, but they are running into resistance from the business community. The U.S. Chamber of Commerce and other business groups have filed a lawsuit seeking to block a CFPB rule that caps credit card late fees at $8.

Notably absent from the hearing were executives from major companies in the airline and credit card industries, including Visa, MasterCard, United Airlines and American Airlines, who declined to testify before the Senate Judiciary Committee on credit card competition last month. .

Visa, Mastercard and the advocacy group Electronic Payments Coalition (EPC) are in an all-out war with retailers and Senate Judiciary Chairman Dick Durbin (D-Ill.) over the senator’s Credit Card Competition Act. ing.

The bill would require the largest financial institutions with more than $100 billion in assets to offer at least two network options for processing credit card transactions.

At least one of these network options must not be Visa or Mastercard, which currently control a combined 80% of the U.S. credit card exchange market. Therefore, high-stakes lobbying efforts are underway.

The industry says the bill, if passed, would eliminate funding for credit card rewards programs. Nick Simpson, EPC’s managing director of communications and public affairs, urged lawmakers to oppose the Credit Card Competition Act during the public portion of the hearing.

“Regulatory and legislative threats like the Durbin-Marshall bill would put these programs at risk. If these programs were eliminated, small businesses would have fewer customers and tourism-rich municipalities would There will be less tax revenue,” Simpson said.

Sen. Roger Marshall (R-Kansas), who co-sponsored the bill with Mr. Durbin, spoke on the Senate floor Wednesday and denounced the “dual monopoly of Visa and Mastercard.” [that] It has used its money and influence in Washington to distract politicians from predatory swipe fees. ”

“I never could have imagined that we would be facing an uphill battle here to do what’s best for hardworking Americans living paycheck to paycheck,” Marshall said.