On May 9, 2024, the Consumer Financial Protection Bureau (CFPB) and U.S. Department of Transportation (DoT) held a 98-minute joint hearing on airline and credit card rewards programs.  CFPB Deputy Director Zixta Martinez introduced the panel and public commenters.

In his opening remarks, Secretary of Transportation Pete Buttigieg compared frequent flyer and credit card rewards to savings accounts.  He indicated that consumers choose airlines or credit cards based on promised rewards and rewards programs need to be fair, transparent, and predictable.  Secretary Buttigieg stated that DoT has not made any decisions with respect to airline rewards programs.

In his opening remarks, CFPB Director Rohit Chopra stated, “[t]he CFPB and DoT share important responsibilities with respect to consumers.  Credit card rewards take the center stage in marketing and the airlines play a massive role.”  He highlighted four goals for the CFPB: (1) protect reward points from massive devaluation; (2) stop bait and switch tactics where promised rewards are not available or stripped away; (3) examine exclusive deals between card issuers and airlines; and (4) promote competition on interest rates.

The following invited panelists gave 3-minute opening statements and answered questions from Director Chopra and Secretary Buttigieg.

• Scott DeAngelo, Executive Vice President and Chief Marketing Officer, Allegiant Air
• Morgan Harper, Director of Policy and Advocacy, American Economic Liberties Project
• Andrew Grimm, President and CEO, Apple Federal Credit Union
• Sara Nelson, International President, Association of Flight Attendants
• Lukas Johnson, Chief Commercial Officer, Breeze Airways
• Erin Witte, Director of Consumer Protection, Consumer Federation of America
• Robert Patrick Cooper, Senior Vice President and General Counsel, OneUnited Bank
• Matthew Klein, Executive Vice President and Chief Commercial Officer, Spirit Airline

The panelists from the smaller airlines stated that their airline loyalty and cobranded card rewards programs were more transparent about point value and redemption and have fewer restrictions on use, such as blackouts and minimums.  Ms. Nelson from the Association of Flight Attendants indicated that 80% of the flight attendants in their association are required to make rewards program announcements and with the exception of Delta Airlines, the operational costs of airlines exceeded the revenue from passenger seat ticket sales and the difference is made up by revenue from credit cards and cargo.  Mr. Cooper, from the largest Black-owned bank, indicated that access to credit was a foundational issue and that he has seen long-term damage to consumers when ability to repay is compromised.  Mr. Grimm from Apple FCU commented that credit cards only make up 5% of their total loan portfolio, the credit union cannot compete on scale, and rate caps impact the value of rewards offered (interest rates on credit union cards are capped at 18%).  The two consumer advocate panelists noted that the value of rewards programs has declined as concentration into four major airlines has reduced competition and that people impacted by rewards program practices could benefit from transparent practices and the elimination of bait and switch tactics.  Director Chopra summarized that there has been a lot of shift in the reward cards markets and interest rates on credit cards have risen much more the federal funds rate.  He asked about the role of flight attendants in marketing and Ms. Nelson responded that the flight attendants have a mixed reaction to participating in marketing but some need the extra income (new account bounties can range from $50-100) to meet their expenses.

Secretary Buttigieg asked the panelists: “How do you decide what a point is worth and what leads to a change?”  The airline panelists responded that their airlines are transparent and communicate the value of their points and allow points to be redeemed at smaller values to defray the cost of ticket purchases (i.e., consumers can use points to partially cover the price of a ticket rather than having to wait to save enough points to cover the entire ticket price).  Ms. Witte responded that “this is a stark reminder of airlines who are not [transparent]; it is very hard to compare programs and offers that are not transparent.”  Ms. Witte indicated that the reduction in seat capacity on airlines makes it difficult for consumers to redeem rewards.

Director Chopra asked the panelists: “What would you like to see the CFPB do when it comes to terms and conditions in credit card agreements?”  Ms. Witte commented that devaluing the rewards that a person has already earned is problematic.  Director Chopra stated, “I worry about marketing claims.  What are the ways that consumers can have reasonable assurance that what they can earn can be reasonably used?”

Mr. Grimm indicated that, to allow comparison, rewards programs need to use the same terminology.  To avoid point devaluations based on economic changes, his credit union is conservative with their point values and do not offer values that they may be unable to sustain in the future.  Ms. Nelson indicated that when rewards points are devalued or the airlines do not deliver what they promised, flight attendants have to deal with the consumer pushback and complaints.  Mr. Cooper suggested that transparency is not enough as reward credit cards push consumers into debt.  Director Chopra agreed that consumers that revolve a balance need lower rates and there is “an enormous amount of interest paid by consumers on credit cards.”

Next, Secretary Buttigieg indicated that DoT was monitoring competition and unfair practices and asked the panel about the competition impacts.  Ms. Harper responded that the markets in which the rewards programs are operating are not competitive and consumer do not have real choices.  She suggested that the root cause of the issues is interchange fees.  Ms. Witte indicated that air travel is dominated by four major carriers and is not competitive.  The airline panelists mentioned that airport gate space also affects the ability of smaller airlines to compete.  Mr. Cooper indicated that interchange fees are important to strengthen banks and tailor credit card programs.  Mr. Grimm indicated that 85% of his credit union’s rewards credit cards carry a revolving balance.

Director Chopra expressed concerns that competition and concentration affect each other and the best rates are not winning.  Deputy Director Martinez then opened up the public discussion during which public commenters made the following comments:

• Regulators should also look at cruise and hotel reward programs and how the redeemed rewards are not taxable income;
• Regulators should look at airlines’ efforts like those of American to eliminate travel advisors from bookings;
• Flying is tied to wealth and there is a need to regulate credit card interchange;
• Credit cards are fiercely competitive and reducing interchange will kill reward programs;
• Use of rewards points brings tourism to states and supports those working in the tourism industry;
• It can be cheaper to fly by purchasing a ticket outright instead of paying the fees to redeem a reward travel ticket;
• Consumers are sometimes unable to use reward points earned;
• 80% of consumers use travel rewards, 90% of them value the rewards, and cash back rewards are used to pay for basic needs; and
• Consumers have fewer rights in their interactions with airlines, which is why state attorneys general need to join in the fight.

In closing the meeting, Deputy Director Martinez stated that a recording of the hearing will be posted on the CFPB’s website in the coming weeks.

Earlier in the day, the CFPB also released a new report titled “Credit Card Rewards,” in which it analyzed consumer complaints related to credit card rewards programs.  In its press release, the CFPB indicated that “consumers who carry revolving balances often pay far more in interest and fees than they get back in rewards.”  The report identified four recurring themes that were similar to Director Chopra’s opening remarks at the hearing:

• Consumers fail to receive promotional rewards when financial institutions impose vague or hidden conditions;
• Consumers lose benefits that they previously earned when issuers and merchants devalue rewards;
• Consumers face obstacles in receiving their preferred redemptions when companies fail to quickly resolve rewards-related issues; and
• Consumers suddenly lose rewards when issuers unilaterally revoke previously earned balances.

The report concluded that federal consumer protection laws apply to credit card rewards programs and the CFPB will work with other government partners to act on these issues.  The CFPB previewed this increased scrutiny of rewards programs in March 2024 when Director Chopra stated at an industry conference that “[w]e are going to be looking into the credit card rewards market due to an increase in consumer complaints.  What the marketing gurus and consultants are telling credit card issuers is that they should focus consumers’ attention on splashy rewards, but then withhold information from them when they’re paying lots of interest and could switch to a lower-rate card, even within the same bank.”

The Consumer Bankers Association (CBA) issued a press release in response to the CFPB’s report noting their ongoing concerns that the CFPB mischaracterizes the fiercely competitive credit card market that offers consumers the ability to choose form a wide array of rewards cards and options.  The CBA noted that the CFPB’s reports and prior spotlights demonstrate the fierce competition in this market from the increased spending on the value of earned rewards points and marketing on rewards card programs.  The CBA stated: “In a market where rewards are highly salient to consumers, and consumers have more choices than ever, issuers will continue to compete by offering consumers better rewards, promotions, and innovations.”  The CBA noted that the average consumer has 3.8 credit cards and chooses which card will be top of wallet for each transaction and can transfer balances to a new card for better terms.  Lastly, the CBA explained that the 1,200 credit card rewards complaints received by the CFPB in 2023 represented only “less than a tenth of one percent (0.09 percent) of the total complaints the Bureau received in 2023.”

The American Bankers Association (ABA) also issued a press release in response to the report and the hearing.  ABA responded to the report “that eight in 10 people have at least one credit card with rewards, with 88% saying in a Morning Consult survey that they value their rewards.”  ABA President and CEO Rob Nichols stated that “[t]he credit card market in the U.S. is highly competitive, and consumers have hundreds of card issuers and thousands of card reward programs to choose from.  If the Bureau wants to truly help consumers, it should start by defending the credit card reward programs that Americans use every day to stretch their dollars and help make ends meet.”

The issuance of the CFPB report and the holding of the hearing on the same day are no coincidence.  While the CFPB has previously conducted examinations of credit card rewards programs, the CFPB is now laser-focused on these programs.  We have previously conducted reviews of many of our clients’ credit card rewards programs for compliance with UDAAP and other applicable laws.  We strongly urge credit card issuers subject to CFPB supervision to take a fresh look at their credit card rewards programs.

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