Members of the travel industry gathered in Washington, D.C., this month to galvanize opposition to a bill they say aims to reduce credit card transaction fees but would unintentionally decrease travel.
The Credit Card Competition Act (CCCA) was introduced last year by Sen. Dick Durbin (D-Illinois) with the goal of reducing fees merchants pay to accept credit card purchases, known as swipe fees, which total about $93 billion a year.
While it would make sense for travel businesses, which pay those fees, to support the proposed legislation, some say its capacity to reduce credit card rewards programs by depressing the ability to earn or use points could diminish travel overall.
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Data from the U.S. Travel Association shows that even a 10% decrease in travel booked via credit card rewards would mean 1.5 million fewer trips and $4.3 billion in lost economic activity for local travel businesses.
"We strongly encourage members of Congress to consider the potential unintended consequences of the CCCA on the traveling public and the broader travel industry," U.S. Travel said in a document from late 2023 as it explored the bill's possible ramifications.
U.S. Travel has not taken a formal position on the proposed legislation but is "concerned" that it could "unintentionally impair popular travel rewards programs for consumers and reduce travel."
A summary of the bill on Durbin's website says Visa and Mastercard control over 80% of the U.S. credit card network and that the 2% to 3% swipe fees merchants pay when those cards are used is passed on to consumers in the form of higher prices.
The bill would require banks with assets over $100 billion to enable at least two credit card networks be used on each card, giving the merchant a choice of processor. Most banks and credit unions in the country would not be subject to the bill's requirement, and cards where the network also issues the card, such as American Express and Discover, would also be exempt.
The event in Washington was hosted by the U.S. Travel Economy Alliance, a group formed to oppose the CCCA. Brian Kelly, founder of The Points Guy, likened its potential impact to the Durbin legislation that capped interchange fees on debit cards in 2010.
"Debit card rewards disappeared, literally overnight," Kelly said, adding that the bill also resulted in the loss of free checking at many banks. "That was just a resounding loss for consumers."
Passage of the CCCA, Kelly said, would mean when consumers go to a restaurant, for example, they could be told their credit card won't run on the network that gives them points, but on the cheapest one.
"Not the Chase reserve card which you love and you pay $550 for and you're getting protection with and you're getting your points," Kelly said.
Airlines want to protect loyalty points
Supporters of the CCCA include the National Restaurant Association, National Retail Federation and International Franchise Association. Many travel industry associations, such as ASTA and the American Hotel & Lodging Association, have not taken a position. Travel agencies are generally not as affected by the fees because the supplier, and not the agency, is the merchant on their sales.
Airlines, however, which make billions in annual revenue from co-branded credit card deals, are among the leading opponents of the act. Delta, the U.S. leader in credit card revenue, made $6.8 billion from its partnership with American Express in 2023 and targets $10 billion by 2028.
Airlines earn income from co-branded cards by selling rewards miles or points to the issuing bank, which then awards those points to cardholders for making purchases or as sign-up incentives. It's a winning scenario for the banks, which use the co-branding to entice customers and fund the points purchases with transaction fees paid by merchants.
Loyalty is good for business. Period. full stop. The airlines are hugely profitable and growing and healthy and survived COVID because of their loyalty programs directly related to their co-branded cards.
Brian Kelly – The Points Guy
It's also a winning scenario for airlines. In a letter to members of Congress last July, Airlines for America (A4A) members Southwest, Delta, United, American, JetBlue and Alaska argued that the bill would jeopardize payment security by rewarding credit card networks that invest less in fraud protection. Because the bill would reduce the transaction fees banks use to fund points purchases, it could also change the underlying calculations made by participating banks.
"The legislation would also unnecessarily increase the cost associated with participating in these programs, harming our ability to reward our most enthusiastic customers' loyalty and putting the viability of these programs at risk," A4A wrote.
The trade group estimates there are nearly 30 million U.S. airline industry credit cardholders, nearly one out of every four U.S. households. A4A also estimates that rewards earned from airline credit cards paid for 15 million domestic visitor trips in 2022.
"Loyalty is good for business. Period. full stop," Kelly said at the event in Washington. "The airlines are hugely profitable and growing and healthy and survived COVID because of their loyalty programs directly related to their co-branded cards."
Kelly said if airlines lose the "massive piece of revenue" from those co-branded cards, they are likely to add extra fees or raise fares to make up for it.
"This is one of those unintended consequences that's really not that hard to see," he said. "And when people travel on points, they spend more -- they're supporting local economies."
Proponents of the CCCA, however, argue that airlines, other loyalty program networks and banks would have plenty of incentive to continue rewards programs, even if the bill were to become law.
"Similar claims about the end of rewards were made when Europe and Australia underwent credit card reform, yet rewards still exist in those countries today," the National Retail Federation said in a March statement, referencing the European Union’s slashing of merchant fees a decade ago.
Similar claims about the end of rewards were made when Europe and Australia underwent credit card reform, yet rewards still exist in those countries today.
National Retail Federation
The federation also cited a study finding that in 2022 the six largest credit issuers netted nearly $32 billion after deducting rewards and partnership payments.
Airlines, too, would likely have plenty of incentive to continue selling points, even if banks were to negotiate lower purchase costs. In a 2021 presentation to investors, American Airlines said it had enjoyed a profit margin of 53% in 2019 from its AAdvantage program.
As for consumer benefits, the National Restaurant Association says that if passed, the bill could mean savings of $15 billion a year for businesses and consumers. A study by Indraneel Chakraborty, a professor at the University of Miami, however, found that the 100 largest retailers in the U.S. would save the most from the law — almost $3 billion in fees — with Walmart, Amazon, Costco and Home Depot the top beneficiaries.
But small business operators would lose out, the study contends, as they are the recipients of up to 10% of all credit card rewards.
*This story originally appeared in Travel Weekly, a fellow Northstar Travel Group publication.