Proposed legislation could hit credit card reward programs

Curtis Arnold
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Curtis Arnold
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EDITOR’S UPDATE: Since this article first published, the proposed legislation has continued to be discussed. In late July, Sen. Roger Marshall (R-Kansas) announced his intention to attach the Credit Card Competition Act to the Defense Authorization Bill that will come up for a vote in Congress next week.

If you value your credit card rewards, NOW is the time to voice your opposition to this bill to your congresspeople.

Here’s a simple form through which you can voice your concerns:

Brooklyn Lowery
CardRatings Editorial Director

Are reward credit cards facing extinction? Reward card lovers unite and write your Congressman/woman! While good intentioned, the Credit Card Competition Act of 2022 will likely bring negative unintended consequences, such as big cuts in card reward programs.

Proposed legislation could hit credit card reward programs

Many have known one of the credit card industry’s dirty little secret for years. But in case you’re not aware: The fees merchants (businesses) pay each time you use your card to earn cash back, air miles, travel rewards, etc. largely fund credit card rewards programs. These fees, aka interchange fees, have been the subject of much debate and legislation for years.

Merchants argue that fees, which typically cost them 1%-3% every time you use your card to make a purchase, are unreasonable and burdensome. Having been a business owner for years, I can see their point to a degree, but I also know that accepting credit cards can help your business grow, and I believe it’s a “cost of doing business.”

I also know that thanks to a huge settlement involving Visa and MasterCard years ago, merchants can charge credit card customers a surcharge for every transaction. A few states have since restricted this practice, but even those states generally allow merchants to offer a discount for cash transactions, effectively creating a loophole for merchants to charge a “fee” for credit card purchases. In other words, merchants can basically pass the interchange fee along to those of us who love using our credit cards, rewards or otherwise.


Key takeaways

  • Legislation impacting credit card interchange fees could spell the demise of credit card reward programs.
  • Historical evidence suggests merchants don’t pass along savings to customers when they see a reduction in credit card fees.
  • The bill could create more competition in the credit card space, which could benefit cardholders and merchants.

What is the Credit Card Competition Act?

Given this background, it’s unclear what the sponsors of The Credit Card Competition Act of 2022 hope to achieve. Proponents say the goal is to foster competition in credit card transactions, which would lower merchant fees. This, in theory, would result in lower prices for goods and services for consumers. I use the phrase “in theory” because this desired result is based on the questionable assumption that merchants will pass along savings to consumers in the form of lower prices (more on this assumption below).

The bill’s sponsors have proposed it as an amendment to the National Defense Authorization Act (NDAA).  The first amendment to the bill aims to also help veterans save money on card fees when they make purchases at military commissaries (supermarkets for military personnel); active military personnel don’t pay any such fees.

While pretty much everyone thinks supporting veterans is a good thing (my brother is one, so I surely do), the actual monetary impact seems limited. I personally know several vets, but none of them shop much at a commissary for various reasons.

“I can shop there, but it’s expensive,” one of my veteran friends notes. And he wasn’t referring to the interchange fees!

The sponsors of the bill aren’t sure of the impact either, so they are requesting a lot of research be done. According to a recent press release from U.S. Senate Majority Whip Dick Durbin (D-IL), the bill “would ask for information from the last fiscal year on how much is being charged in [interchange] fees [to veterans], which card networks and banks are receiving the fees, how much each category of veteran is being charged, and whether any banks or networks are reimbursing the swipe fees in order to spare the veterans from being surcharged for the fees.”

Competition in the card industry sounds good, but consumer protections are already in place

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (aka the CARD Act) introduced sweeping and much-needed reform in the card industry. I’m proud to say that helped expose several consumer issues that the CARD Act addressed.

Many consumer advocates, like myself, have applauded the long-term results of the CARD Act. Linda Sherry, a nationally recognized consumer advocate affiliated with Consumer Action, noted during a recent interview that the CARD Act did more than just enhance card disclosures.
“I don’t like to see requirements for ‘disclosure’ and ‘enhanced consumer education’ substituted for substantive consumer protections that absolutely make corporations do the right thing,” Sherry says. “With the CARD Act, lawmakers hit a sweet spot in consumer protection by actually regulating practices and capping fees.”

While the CARD Act didn’t lower interchange fees, it did lead to the lowering of numerous other card fees soon after it became law. In fact, the Consumer Financial Protection Bureau (CFPB), created by the CARD Act to serve as a financial watchdog agency, concluded in a 2013 report that the act reduced penalty fees and made card costs clearer.

In short, the CARD Act, the CFPB and several non-profits do a great job of protecting cardholders. Let’s also not forget that each state has an attorney general’s office also advocating for consumers.


Have you lost your cardholder agreement (which details card terms and conditions)? Wondering what the terms of a particular card offer is? The CFPB created a comprehensive database of all credit card agreements. On a related note, the CFPB also mediates complaints about card issuers.

What is the possible positive impact of this bill?

Considering that great consumer protections are already in place, the bottom-line question becomes, “Do we really need more legislation?”

Nearly everyone seems to agree that there is a limited potential benefit to veterans who actually shop at a commissary on a regular basis, which I’m estimating is a minority of vets (though I don’t have official data to support this position). My best educated guess is that lowering interchange fees might save veterans 1%-3% off the purchase price of commissary items and we shouldn’t discount this admittedly quite limited benefit.

“Any financial benefit to the people who served our country as heroes or who were disabled while fighting for our freedom is a win for all of us,” Sherry summarizes. “Certain veterans are allowed to shop at military commissaries, where the ‘swipe fees’ that networks demand of businesses that accept payment cards are passed along to the veterans (but not active military), adding to the costs of their purchases. If the competition envisioned by the legislation comes to pass, these veterans could pay less if network providers slash fees to compete with ‘new’ networks – a well-intentioned outcome.”

Certainly some businesses, particularly small businesses, will benefit significantly from the bill as their cost for each credit card transaction will likely drop by 1%-3%. According to the National Retail Federation, a lobby group, interchange fees make up the second-biggest cost for retail businesses after wages. The one significant exception, as noted above, are the many businesses who already charge customers extra fees.

However, the actual benefit to the general population is much more debatable since it’s uncertain whether these same businesses will pass lower interchange fees onto consumers by lowering prices for goods and services. History, in fact, does not support this coming to pass.

What we learned from the Durbin Amendment that lowered debit card interchange fees

A similar act involving lowered debit card fees passed in 2010 and became known as the Durbin Amendment to the 2010 Dodd-Frank Act. While this act did result in lower debit card fees for merchants, some studies show that banks offset the loss in interchange fees income by raising other fees, such as checking account fees. Moreover, there is also evidence that many merchants didn’t lower the prices of their goods and services in response to paying lower merchant fees, which was one of the stated goals of the legislation.

“Since the Durbin Amendment, I cannot see much evidence that merchants passed along savings to consumers,” Sherry opines. “Again, nothing forces them to do so. In this regard, the effects of ‘competition’ are often overestimated. Here, stronger ‘antitrust’ enforcement is needed.

“While well-intentioned and targeting a loophole the huge network duopoly [Visa and MasterCard] managed to exploit since Durbin [Amendment in 2010], given corporate power, I wonder if the Credit Card Competition Act will prove to have significant effects on the general market for payment card users,” Sherry continues.

Could this bill mean the end of credit card rewards programs?

The biggest potential negative for everyday cardholders involves rewards cards. While reward programs are unlikely to become extinct, major cuts are not only possible but probable.

“The predictions as to benefit at this point are highly theoretical outside of the situations of certain veterans,” Sherry explains. “Another possible less-beneficial outcome would be that networks charging lower network fees would be setting up an environment where ‘rewards’ customers might lose out because rewards are generally funded by the merchant fees and rewards could be slashed or done away with in the new environment. This is obviously not great for rewards credit card users…”

Again, we need look no further for evidence than to what happened to debit card rewards after the passage of the Durbin Amendment. According to a press release by the Independent Community Bankers of America, banks significantly slashed debit card rewards after Durbin.

Moreover, several other countries, such as the UK, have passed similar legislation and, as a result, credit card reward programs in all of these countries have been negatively impacted. For example, soon after the passage of the UK legislation, Capital One informed UK customers that it would be reducing or completely eliminating cash-back rewards for all its cards, according to Loyalty Magazine.

U.S. reward cards have surged in popularity over the years. Cardholders love getting the nice, “free” perks, rewards and more offered by the best credit cards on the market. For most, it’s a fringe benefit alongside the convenience of using credit cards. But reward cards provide what some construe as a type of supplemental income to certain cardholders, particularly those feeling pinched by the current economy.

This might also explain why a recent survey by CardRatings found that that 36% of millennials (ages 18-34) who have a rewards credit card redeem rewards as soon as they are available as compared to just 20% of adults ages 45+ who say they redeem right away. Millennials and Gen Zers, of course, typically have lower incomes than older adults.

Jim Bradley (name changed to protect his identity) works for a non-profit ministry (ironically, one that provides free personal financial services) and lives paycheck to paycheck. He uses his rebate points to help defray his Christmas expenses every year.

“I redeem all my points once a year,” he says. “I call the first week in December and use my rewards to buy Christmas gifts. Thankfully, I haven’t had to buy Christmas gifts using my own money in over five years now!”


Many cardholders use their rebate earnings as statement credits in order to reduce their monthly card bill, which can be particularly helpful as we approach the holidays. Some card issuers even allow you to set up automatic redemption when your rebates reach a certain threshold (that you specify) or after a set number of days.

Final Thoughts

In closing, while the authors of this bill may have good intentions, the potential positive impact for consumers seems quite limited. The potential negative impact, however, is substantial.

While I did support the CARD Act, I’ve always maintained that competition and consumer education are the most effective protections for cardholders. Competition and consumer education are just as effective in most cases, if not more so, than increased legislation.

Interestingly enough, this bill seeks to increase competition by ending Visa and MasterCard’s duopoly when it comes to interchange fees. Not surprisingly, given my support of increased competition in the card space, this is the one part of the bill that I do support.

I sincerely hope these tips are helpful to you and would love your feedback on your personal experiences with interchange fees and rebate cards. Who knows, I may include a tip from you in a future article! Best wishes in using rebate cards to your financial advantage.

Curtis Arnold
CardRatings Founder

Curtis founded in 1998 and, in so doing, helped pioneer the concept of rating credit cards. He has been a nationally recognized expert in consumer credit for well over 20 years. He is the author of “How You Can Profit from Credit Cards: Using...Read more

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