Senators Dick Durbin (D-IL) and Roger Marshall (R-KS) have asked both the Consumer Financial Protection Bureau and Department of Transportation to investigate airline frequent flyer programs, writing that
[A]irlines are changing point systems in ways that are unfair to consumers, including by devaluing points, meaning it takes more points than initially marketed to achieve the promised rewards.
As with so much in Washington, there’s more here than meets the eye. These two Senators aren’t concerned for members of the programs, and devaluations don’t actually bother them. They have their own bill that would cause significant devaluation. Instead,
- If they can de-legitimize frequent flyer programs, they hope that the complaint that programs will be harmed by their bill to regulate credit card interchange won’t carry as much weight.
- They can punish airlines for coming out against their proposed legislation, Banana Republic-style.
Now, the Department of Transportation is where consumers need to go for redress over unfair practices by airline loyalty programs. But DOT’s own Inspector General has written that the agency improperly ignores complaints about the programs. Consumers have little room to sue over loyalty program unfair dealings, because the Supreme Court has foreclosed access to common law doctrines in state courts, saying these are pre-empted by the Airline Deregulation Act.
However this new broadside is just regulatory payback. Senators Durbin and Marshall are carrying the retail lobby’s water to cap credit card interchange, having the government mandate that credit card processing be provided to them at lower than market prices. As with Durbin’s cap on debit card interchange, less profitable products mean there’s little incentive to spend on rewards, rebating to the customer to compete for their transactions.
Airlines have been vocal, through their own lobbying group Airlines For America and especially United Airliens CEO Scott Kirby, that this is bad for them (their frequent flyer programs are the most profitable part of their business, and mortgaging them kept them afloat during the pandemic – along with government subsidies – and they’re profitable by selling miles to banks). And it’s also bad for their customers.
We don’t know exactly how bad it would be for loyalty programs. They don’t ‘go away’. Where interchange is regulated, such as Australia, we’ve seen substantial devaluations. You can still earn one mile per dollar on credit cards, but to get there the mile has to be worth less. Meanwhile retail prices haven’t fallen. It’s a redistribution from consumers to retailers.
Durbin and Marshall want to say that since programs devalue, their objections to interchange regulation are illegitimate. But in the ultimate ‘wolf in sheep’s clothing’ move, it’s Durbin and Marshall who would devalue the programs most.
The Senators never raised an objection while programs were actually devaluing, actually making miles worth less during the pandemic or when Delta was driving the industry towards low value revenue-based redemptions. There’s been a recent outcry over Delta’s announced changes, slowed down and temporarily walked back. But those have nothing to do with redemptions, only elite status qualifying and access to their lounges. However it’s created a general sense of ‘devaluation’ that politicians can tap into. And you rarely lose with political rhetoric attacking airlines.
Are you suggesting that an airline frequent flyer program that is based on the consumer’s flying is devalued compared to a program based on their credit card and travel portal spend? History would seem to suggest otherwise…
The bill wouldn’t cause devaluation of the programs to the consumers, it would devalue the programs for the airlines by ceasing the practice of airlines staying in business on the backs of other retailers. That $7 billion a year Delta gets from its frequent flyer program is really a tax on the rest of the economy.
For the consumer, the value of the programs might actually increase if the airlines are forced back into running loyalty programs for FLYING. I don’t think anyone would argue the current programs are more valuable for the consumer than the programs of 20 years ago that were based on flying rather than credit card / travel portal spend.
Who is really mad that they won’t be able to earn Skypesos?
I welcome the Senators’ look into frequent flyer program devaluations. If only they would push to make it explicit that the airline loyalty programs will no longer be allowed to hide behind the Carter-era airline deregulation act.
Just more politicians who don’t give a hoot about you looking to take away from you
It’s not just miles. it’s cash back rewards at stake. Who wants to be the politician who takes away people’s cash back credit cards?
Politicians, always looking to make things worse. Stay out of it please.
I only wish this law passes.
Cash is king. If I could get everything 1-2% cheaper every day, that would be a HUGE WIN! And that would be even better for those who are poor and can’t qualify for credit cards. All the better if there’s less money for sales commissions to bloggers!
All the prices we pay now are inflated by this huge wealth redistribution (credit card fees are added to the price of everything we buy, just like rent, electricity, etc.); the suckers are us, consumers.
Gary, what evidence do you have to support your belief that their motivation is “just regulatory payback”?
@Jake – do you believe for a minute things will get 1-2% cheaper. It will flow to the margins of other parties.
More regulation of the interchange is sorely needed. As has been mentioned, your earning frequent-flyer miles is actually costing you more for everything else. Every transaction is costing more just to get you that Gold level. Is that fair to everyone else, who are paying more in order to give you a mileage boost? Absolutely not. Don’t blame the legislators, blame the airlines and other industries that have raked in $$$BILLIONS$$$ off the backs of every consumer, even if they aren’t a customer.
@Jake/@Edward: Accepting credit cards probably doesn’t cost more, or minutely more, than accepting cash – processing cash has its own costs in terms of physical handling, error, loss/theft, etc. All the merchants who have stopped accepting cash aren’t doing it because it’s more expensive.
And unfortunately, we learned after the durbin amendment that if you cut the fees out of processing, that doesn’t come off prices, it goes onto profit margins.
Regulating interchange fees will make accepting credit less expensive, and less expensive than accepting cash, and that will ultimately benefit retailer profit margins at the expense of consumers who can qualify for rewards cards.
Greg is right… don’t be stupid. I was a retailer for most of my life. I understand how these things work. If you stop to think about it… this is a plan to reduce retailer costs that will then be reflected in a savings to the consumer. So, imagine any item you typically buy for $20 (or $19.99)… now imagine that the retailer is now going to save 1-2% in credit card fees… do you think that the retailer will reprice the item to $19.80? Of course not. don’t be an idiot. Durbin is working on the behalf of retail GIANTS (not little guys). A 1-2% shift in the fortunes of Best Buy/Target/Wal-Mart/Etc. would be monumental to their earning… for one year. Then they’ll need to comp and find some other way to screw us. DO NOT SUPPORT DURBIN UNDER ANY CIRCUMSTANCES.
@Jake, if you think everyday prices will drop 1-2% because Senator Dufus’s bill is signed by Slow Joe, then you are totally naive. Prices never drop (its called deflation) except during a severe recession which is not going to happen anytime soon (that 3rd quarter GDP number was shockingly good) because most have good jobs, low interest mortages, and plenty of savings. The result of this becoming law is that small retail businesses up to the biggest (Walmart, Amazon, Costco, Target) get 1-2% more profits.
Lowering retailers’ card processing fees will be pocketed to only benefit the retailers with improved margins and earnings for the retailers at the expense of consumers.
Politicians blowing hot air saying one thing with ulterior motives???? I’m shocked. SHOCKED!
I operate a retail business and @Bernie Sapienza is pretty much right in his analysis. Walmart would do great out of this. Me, not so much.
I have yet to see anything that Durbin has done that is beneficial.
To all those who think this is great: When Durbin did this to debit cards, banks discontinued mileage on debit cards & free checking went to $15/month. Anyone notice retail prices coming down? Durbin is from Illinois & this is what we call a fetcher bill because it fetches campaign contributions.
We should all be actively harassing our reps/senators over this… here’s the link https://www.congress.gov/members/find-your-member
Jack the Lad,
The big commercial banks already had plans to go after eliminating “free checking” and play other games to boost their revenues and income from current accounts even before Durbin was elected to the US Senate. A handul of years later, the big banks took the opportunity thereafter to roll out their customer-unfriendly changes when they had both the political cover and market concentration power to get away with it and could conveniently also blame “regulation”.