Credit card rewards become sticking point as big banks fight Congress

Mad about attempts in Washington to curb junk fees, Wall Street is funding an attack campaign that it hopes can convince Americans that Congress’s latest reform bill, called the Credit Card Competition Act, is a fiendish ploy to destroy their credit card rewards points.

The legislation is the 2023 version of a Senate bill written by senators Dick Durbin of Illinois and Roger Marshall of Kansas, but it now has more bipartisan support. It aims to lower the credit card processing fees paid by merchants, which backers say will benefit consumers. This has spawned a counter-campaign by an alliance within the finance industry that has begun blanketing airwaves and social media with a series of ads contending that if Congress does rein in those high fees, consumers can expect collateral damage to the credit card rewards ecosystem.

They’re the work of the American Bankers Association and an organization known as the Electric Payments Coalition that includes not only the Visa and Mastercard duopoly, but also all the top banks (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo), the biggest bank holding companies like Capitol One, and the largest credit unions.

Attacks span from catchy tag lines like “Hands Off My Rewards” and “Protect My Points” to other decidedly less catchy attempts, like “Donut Touch My Rewards.”

That last one, in fact, was the theme emblazoned on a food truck that handed out free doughnuts in D.C. yesterday near Capitol Hill, serving up delicious treats such as the Cashback (a crème-brûléed option), the Airlines Miles (a plain-old vanilla glazed), and the Hotel Perks (which was filled with strawberry jam, glazed with peanut butter, then topped with chopped peanuts). The Electric Payments Coalition claims that some 600 guests swung by to satisfy their sweet teeth.

Spots have run in the TV markets of the bill backers’ districts. Rampant inflation and increased living costs are unfair enough to Americans already, observes one. “Why are some in Washington pushing a new costly mandate that will make things harder for consumers?” it asks. “It’ll mean the credit card rewards you enjoy will go away. It won’t be your choice—it’ll be what Washington wants.”

Another 30-second ad directs viewers’ attention to a different villain entirely. “Say goodbye to your credit card rewards!” it begins. “Greedy big-box retailers want to take your hard-earned travel points and cash back to line their pockets, leaving you in the dust.”

Lobbyists have also recruited Brian Kelly, founder of The Points Guy travel website. In recent weeks, Kelly has mounted his own cable news tour, where he’s maintained that the bill will “only benefit big-box stores like Walmart and Target, and it will line their pockets with billions at the expense of consumers.”

The end goal is to get American consumers to tell their elected representatives “how disappointed they are” about the Credit Card Competition Act, says Rob Nichols, the president of the American Bankers Association. “We’ll spend whatever is needed,” he vowed to Politico on Thursday.

Durbin and his allies in Congress—who include members across the aisle, like J.D. Vance of Ohio—are zeroing in on how rewards programs tend to benefit one particular socioeconomic group in America: higher-income earners. Meanwhile, junk fees disproportionately hurt minority groups and the financially under-resourced.

The connection to rewards programs is convoluted, but here’s a stab at it: The Biden administration argues that banks are using junk fees to siphon billions of dollars out of customers’ pockets every year, via everything from high transaction fees when they swipe their cards at stores, to late penalties and overdraft fees. (Bank of America is currently in the process of returning $80 million to customers who fell victim to a scheme that double-charged them for overdraft fees.)

But the banks point to Durbin’s previous handiwork—specifically his 2010 Dodd-Frank Act amendment that limited debit card-swipe fees—and argue that studies show it actually backfired, increasing costs for small businesses, saving billion-dollar retailers like Walmart and Amazon money, and ultimately dooming the perks that consumers also once enjoyed on their debit cards. The contention is that when fees plummet, something has to go, and banks choose perks.

This current coalition says curb credit card fees, and you’ll get the same problem. And it’s unclear if the Biden administration necessarily believes rewards programs are worth saving. Progressive economists have argued that they amount to a $15 billion-a-year racket, one that benefits America’s better-educated, wealthier class—”a reverse Robin Hood, generating billions in untaxed side income for rich people,” as one put it to Politico.

According to data from the Federal Reserve Bank of San Francisco, households earning more than $150,000 a year make 50% of purchases with credit cards. For households with the median income ($70,000), that drops to 23%, and for households earning $25,000, it’s just 11%—hardly enough to reap spectacular rewards.

If passed, the Credit Card Competition Act would require banks to partner with at least two payment networks for their credit cards, and the options can’t be just Visa and Mastercard. That should spur competition, allowing retailers to reduce the swipe fees they pay, and, in theory anyway, passing savings along to consumers.

The banking coalition argues consumers wouldn’t see these cost savings because big retailers will simply pocket them for themselves, and it’s here to fight Washington on behalf of all American consumers. However, the donut truck may not make that case especially well. Wednesday’s event seemed designed to appeal to Capitol Hill staffers, a group that largely comes from wealthy households, attends private schools, and is precisely the demographic the Point Guy’s latest hack to maximize travel points was created for.