Could Congress really 'kill' credit-card rewards? Here's why airlines are up in arms

By Hannah Erin Lang

United CEO Scott Kirby has warned that the Credit Card Competition Act could 'kill' rewards programs. Here's what to know about the proposed legislation.

You may have to kiss those credit-card points goodbye.

That's the warning issued by critics of proposed legislation designed to encourage competition among credit-card networks and make it cheaper for retailers to process credit-card payments.

First proposed in June 2022 by Sen. Dick Durbin, an Illinois Democrat, the bill was reintroduced this past summer with new bipartisan support. Supporters of the bill, dubbed the Credit Card Competition Act, say it would address a Visa-Mastercard (V) (MA) duopoly and lower processing costs for businesses -- and, by extension, help consumers' wallets.

The proposed changes have drawn sharp criticism from airlines, travel firms and financial institutions, who argue the bill would place unnecessary restrictions on payment processing and inadvertently get rid of many credit-card perks and rewards programs. Millions of Americans use those programs to book travel plans, upgrade flight seats or earn cash back on purchases.

Airlines have stepped up their public opposition to the Credit Card Competition Act in recent weeks, with executives pointing to the legislation's potential consequences for frequent flyer miles.

But could the bill really end up impacting your flight miles and dining points? Here's what you need to know.

What is the Credit Card Competition Act?

Credit-card issuers make money in three primary ways: through interest and fees charged directly to customers, and through other charges called interchange fees -- paid by the merchants where you use your card, as a percentage of each transaction.

Occasionally, shops, restaurants and other businesses charge customers a payment processing fee to help defray that cost, said Brian Kelly, founder of the travel rewards website The Points Guy. Most of the time, they just build it into the cost of doing business.

The Credit Card Competition Act of 2023 addresses those so-called swipe fees, arguing that the dominance of the two largest credit-card networks, Visa and Mastercard, has created a duopoly that gives businesses little option but to pay the price they set for swipe fees.

In a statement to MarketWatch, Visa said its "overall" interchange fees have remained flat for more than a decade. The company also said it has lowered interchange fees for "the vast majority of small businesses" in recent years, even as payment volume more than doubled.

Mastercard did not immediately respond to a request for comment.

The bill, if passed into law, would require the largest credit-card issuers to offer at least two networks over which merchants could process credit-card payments. At least one of those networks couldn't be Visa or Mastercard.

This competition would lead to better service and lower costs, a summary of the bill argues.

"Merchants have no choice but to accept the outrageous fees if they want to accept credit cards used by their customers," Sen. Durbin said in a September press conference calling on Congress to pass the act. "It is long overdue for Congress to break up the sweetheart deal that Visa, Mastercard and the big banks enjoy."

How could the Credit Card Competition Act affect credit-card rewards?

Critics argue that the proposed network changes would cut into card issuer's profits, leading them to shrink the rewards they offer customers or drop them entirely.

"If you reduce the revenue available to the credit-card issuers, the benefit to consumers from a rewards perspective would also have to change," explained Ed Mills, a managing director and Washington policy analyst at Raymond James.

The airline industry has been particularly vocal in its criticism.

United Airlines (UAL) CEO Scott Kirby said on the airline's Oct. 18 earnings call that the proposed legislation "would kill rewards programs."

"It would not exist anymore," he said on the call. "I think it's bad policy."

In an interview with Bloomberg, Delta (DAL) CEO Ed Bastian said the bill would result in "unbelievable" consumer backlash.

"Those cards could no longer receive the funding to be able to invest in rewards-back opportunities," he told the outlet. In an email to MarketWatch, a Delta spokesperson stated that Bastian was speaking about his knowledge of others in the industry, and that the airline remains neutral on the legislation.

Airlines for America, a trade association representing major U.S. airlines including Delta, American Airlines and Southwest (LUV), has argued that the act would threaten popular airlines rewards cards. The group launched a campaign, called "Protect our Points," urging consumers to write to their lawmakers opposing the bill.

"Rewards cards generate immense value for consumers," the group told MarketWatch in a statement via email. The proposed mandate would also increase complexity and confusion for card users, Airlines for America said.

Changes to the credit-card rewards system could be particularly challenging for airlines, Kelly, of The Points Guy, said.

"Airlines make more money selling miles to banks (to distribute to cardholders) than they do flying planes," he said. "If consumers can no longer earn points, they won't use airline credit cards."

The Points Guy earns commissions on its credit card, hotel and product referrals, in addition to running paid sponsorships with financial service providers and other brands.

Kelly added that flight miles or dining points may not be the only perks impacted by the potential change. Revenue from interchange fees also helps card issuers offer other services, like extensive fraud coverage.

"Fraud protections will be scaled back, rewards will be scaled back," he said. "Consumers are going to lose, full stop."

Would credit-card issuers actually scale back perks?

Even if the bill were to pass, it's difficult to predict just how severely card issuers would scale back rewards, said Ian Katz, managing director at Capital Alpha Partners, a policy-research organization.

"It could be a serious loss, if this were to happen," Katz said. "It's also just a fact that, for the groups that are making these points, it's not in their best interest to understate the (potential) impact."

"It's rich that the airline industry -- which generates billions of dollars each year from co-branded credit cards -- is pretending to have hardworking Americans' interest at heart," Sen. Durbin wrote MarketWatch in a statement.

Durbin noted that the EU put a hard cap on swipe fees in 2015 and credit-card rewards programs didn't disappear. But some banks did in fact scale back benefits after that decision. The U.K. banned swipe fees in 2017.

Supporters of the Credit Card Competition Act also argue that, even with cheaper payment networks, financial institutions will still use rewards to market to and compete for customers.

"Rewards are determined by the bank that issues a card, not the network that processes the transaction," said said Stephanie Martz, chief administrative officer and general counsel for the National Retail Federation.

She called airlines' criticism of the bill "a scare tactic to mislead Congress."

"The amount of revenue banks would lose is a small fraction of total swipe fee collections, far from enough to put an end to rewards," she said.

Will the Credit Card Competition Act become law?

It's unlikely that the Credit Card Competition Act of 2023 will become law this year, Mills said.

"As of right now, the odds are low," he explained. "(Durbin) has more of a coalition together today, but four senators is well short of the 60 needed for controversial measures to get adopted."

And some members of Congress just aren't keen on taking a stance.

"It pits a local merchant in their district against a local bank," Katz added. "There's quite a few members of Congress who probably would rather not vote on this at all."

Even if the current bill doesn't go anywhere, there's a good chance that the debate over swipe fees will resurface eventually, Mills said.

"There are well-funded business interests on each side of this debate, and literally billions of dollars are at stake," he said. "That's not something that ever goes away."

-Hannah Erin Lang

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11-07-23 1031ET

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