Merchants Agree With Durbin That Banks and Airlines Are Undermining Credit Card Rewards

Contact: J. Craig Shearman
(202) 257-3678

WASHINGTON, May 10, 2024 – The Merchants Payments Coalition today agreed with Senator Richard Durbin that airline industry practices are the biggest threat to credit card rewards and that more competition would help consumers earn better benefits and savings.

“It is their own questionable practices that threaten American consumers’ ability to redeem rewards,” Durbin said, referring to banks and airlines. “Modern-day airlines have become credit card companies that also happen to own airplanes.”

Durbin spoke on the Senate floor Thursday afternoon after the Consumer Financial Protection Bureau issued a new
report saying airlines and banks often devalue or deny rewards even after requirements are met. The report was released in conjunction with a joint CFPB-Department of Transportation hearing on the issue held Thursday morning after Durbin asked them to investigate reports of unfair and deceptive practices in airline frequent flyer and loyalty programs.

Durbin earlier this year invited American Airlines CEO Scott Kirby along with CEOs of United Airlines, Visa and Mastercard to testify at a hearing on growing credit card swipe fees but all of them
refused to appear.

Durbin said Thursday that airlines push consumers to sign up for credit cards “as soon as they have their passengers buckled in” and cited studies showing they make more on co-branded cards than flying passengers. Other reports, he said, show that they regularly devalue rewards and that purchasing rewards from an airline website can cost three times as much as their value at redemption, making them a “rip-off with wings.”

“Senator Durbin is right: banks and airlines are taking away peoples’ rewards by devaluing them and making them hard to use,” MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said. “If they had more competitors pushing them to do the right thing, consumers would be treated better. Just 10 banks have more than 80 percent of the Visa and Mastercard credit card market and they all charge the same centrally fixed prices. Competition keeps businesses honest in what they offer their customers, and the lack of competition is the core of the problem that Senator Durbin pointed out.”

The Credit Card Competition Act would bring needed market forces to the credit card industry and is intended to reduce credit card swipe fees, which average 2.26 percent of the transaction but can range as high as 4 percent. Credit and debit card swipe fees have more than doubled over the past decade and reached a record $172 billion in 2023. They are most merchants’ highest operating cost after labor, driving up prices by an estimated
$1,102 a year for the average family.

The fees have risen because of lack of competition: Visa and Mastercard – which control over 80 percent of the market – each centrally set swipe fees charged by banks that issue cards under their brands rather than allowing banks to compete to offer the lowest rate. They also block transactions from being processed over competing networks that offer lower rates and better security.

The CCCA would ensure that credit cards issued by the nation’s largest banks be enabled to be routed over at least one competing network like NYCE, Star, Shazam or Discover in addition to Visa or Mastercard’s networks. Banks would choose which networks to enable but merchants would then choose which to use, resulting in competition over fees, security and service expected to save merchants and their customers
$16.4 billion a year.

Financial institutions with less than $100 billion in assets – including all community banks and all but one credit union – would be exempt, credit card
rewards would not be affected and nothing would change about how cards are used.

A study by payments consulting firm CMSPI found last year that rewards would be reduced by less than one-tenth of 1 percent “at most” under the CCCA and that banks have “more than sufficient margin” to offset lost swipe fee revenue and “maintain current reward levels.” A report by fact-checking website Verify branded claims that rewards would go away under the bill as “false.”

About MPC
Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants. Follow MPC on Twitter, Facebook or LinkedIn for the latest on swipe fees.