Travel industry stakeholders gathered in Washington, D.C., last week to galvanize opposition to the bill, which they say aims to reduce credit card processing fees but would unintentionally reduce travel.
The Credit Card Competition Act (CCCA) was introduced last year by Sen. Dick Durbin (D-Ill.) to reduce the fees merchants pay to accept credit card purchases, known as swipe fees. The total amount is approximately 93 billion dollars per year.
It makes sense that travel companies that pay these fees would support this bill, but the ability to cut credit card rewards programs by reducing their ability to earn and use points would make travel Some say it could reduce the total.
According to U.S. Travel Association data, even a 10% decrease in trips booked with credit card rewards would result in 1.5 million fewer trips and $4.3 billion in lost economic activity for local travel companies. Masu.
In a late 2023 document examining the bill’s potential impact, US Travel “urges members of Congress to consider the potential unintended effects the CCCA could have on travelers and the broader travel industry.” I recommend it.”
US Travel has not taken a formal position on the bill, but is “concerned” that the bill could “unintentionally undermine popular travel rewards programs for consumers and reduce travel.” Masu.
According to a summary of the bill posted on Durbin's website, Visa and Mastercard control 80% of the U.S. credit card networks, and merchants pay 2% to 3% when using these cards. swipe fees are passed on to consumers in the form of higher prices. .
The bill would require banks with more than $100 billion in assets to allow each card to use at least two credit card networks, giving merchants a choice of processors. Most banks and credit unions in the country would be exempt from the bill's requirements, as would cards issued by networks such as American Express and Discover.
The event in Washington was hosted by the US Travel Economy Alliance, a group formed to oppose the CCCA. Brian Kelly, founder of The Points Guy, likened the potential impact to the Durbin Act, which capped debit card interchange fees in 2010.
“Debit card perks literally disappeared overnight,” Kelly said, adding that the bill would eliminate free checking at many banks. “It was just a huge loss for consumers.”
Kelly said if the CCCA were to pass, a consumer could go to a restaurant and be told, for example, that their credit card is not available on the network that gives them points and cannot be used on the cheapest network. .
“It's not like the Chase Reserve card that you love and pay $550 to get protection and earn points,” Kelly said.
Airlines want to protect loyalty points
Supporters of CCCA include the National Restaurant Association, National Retail Federation, and International Franchise Association. Many travel industry groups, including ASTA and the American Hotel and Lodging Association, have not taken a position. Travel agents are typically less affected by commissions because the supplier is the seller rather than the travel agent.
But airlines, which generate billions of dollars a year in co-branded credit card transactions, are among the major opponents of the law. Delta Air Lines, the U.S. leader in credit card revenue, earned $6.8 billion in 2023 from its partnership with American Express, with a goal of $10 billion by 2028.
Airlines make money by selling reward miles and points from their affiliated cards to issuing banks, which then give those points to cardholders as an incentive to make purchases or sign up. This is a win-win scenario for banks, which use co-branding to attract customers and fund point purchases with transaction fees paid by merchants.
This is also a win-win scenario for airlines. In a letter to members of Congress last July, Airlines for America (A4A) members Southwest Airlines, Delta Air Lines, United Airlines, American Airlines, JetBlue Airways, and Alaska Airlines said the bill would prevent fraud. They argued that it would jeopardize the security of payments by rewarding credit card networks that invest less in the system. The bill could also change the underlying calculations by participating banks, as it would reduce the transaction fees banks use to finance point purchases.
“This bill also unnecessarily increases the costs associated with participating in these programs, impairs our ability to reward the loyalty of our most loyal customers, and jeopardizes the viability of these programs. ”A4A wrote.
The industry group estimates that the U.S. airline industry has about 30 million credit card holders, or nearly 1 in 4 U.S. households. A4A also estimates that rewards earned on airline credit cards paid for travel for 15 million domestic travelers in 2022.
“Loyalty is good for business. Regularly, with all your might,” Kelly said at an event in Washington. “Airlines have been able to generate significant profits, grow, and emerge from the coronavirus crisis in good health thanks to loyalty programs directly linked to co-branded cards.”
Kelly said if airlines lose “huge amounts of revenue” from these co-branded cards, they will likely add surcharges or raise fares to make up for it.
“This is one of the unintended consequences, but it's not that hard to see in practice,” he says. “And when people travel with points, they spend more and support local economies.”
But supporters of the CCCA argue that even if the bill becomes law, airlines, other loyalty program networks, and banks would have ample incentive to continue their rewards programs.
In a March statement, the National Retail Federation cited the EU's reduction in merchant fees a decade ago, saying, “Similar arguments for eliminating benefits were made during credit card reforms in Europe and Australia. However, benefits still exist in these countries.”
The federation also cited research showing that six major credit issuers made nearly $32 billion in profits in 2022, after fees and partnership payments.
Airlines will also have ample incentive to continue selling points, even if banks negotiate lower purchase costs. American Airlines said in its 2021 presentation to investors that its AAdvantage program allowed it to enjoy a 53% return in 2019.
In terms of consumer benefits, the National Restaurant Association says the bill, if passed, could save businesses and consumers $15 billion annually. But a study by University of Miami professor Indranil Chakraborty found that the 100 largest U.S. retailers could save the most money from the law, with Walmart, Amazon, Costco and Home Depot's fees It is said to be about 3 billion dollars. biggest beneficiary.
However, small business owners will lose out because they receive up to 10% of all credit card benefits, the study claims.
