CFPB, DOT Meet as Travel Credit Card Rewards Come Under Scrutiny

The Consumer Financial Protection Bureau (CFPB) and the Department of Transportation (DOT) met on Thursday, May 9, 2024, amid mounting pressure from regulators on credit cards that earn travel rewards.

This hearing follows an announcement in December¹ saying that the DOT was looking into frequent flyer programs “to carefully review complaints regarding loyalty programs and exercise our authority to investigate airlines for unfair and deceptive practices that hurt travelers as warranted.”

The hearing included several key stakeholders, including Transportation Secretary Pete Buttigieg, CFPB Director Rohit Chopra, and representatives from both the airline and banking industries. The meeting should be noted by aficionados of loyalty programs, but it also shouldn’t be extrapolated that loyalty programs will end anytime soon.

Here’s what you need to know.

Regulators Argue Loyalty Programs Grow at Consumers’ Expense

Even those who are well-versed in travel loyalty programs will admit that they’re not easy to navigate. A CFPB study published in tandem with the meeting reflects that. In 2023, the consumer watchdog received 1,200 complaints involving credit card rewards — 70% more than pre-pandemic levels — according to the CFPB. As the Biden administration has its eyes on junk fees, government organizations are on the lookout for other consumer-facing financial difficulties.

Complaints from consumers included:

• Failing to receive promotional rewards when financial institutions impose vague or hidden conditions
• Losing benefits that they previously earned when rewards are devalued
• Hurdles to receiving redemptions when rewards-related issues come up
• Unexpectedly losing rewards with credit card issuers close their accounts

This comes at a time when credit card debt is over $1.13 trillion, and credit card companies are bringing in billions in interest and fees charged to consumers. The CFPB isn’t keen on consumers absorbing these hardships while being incentivized by card issuers and loyalty programs.

“Credit card companies promise upfront benefits for signing up and using their rewards card, but often bury complex terms in the fine print for using the rewards,” said CFPB Director Rohit Chopra in a prepared statement. “The CFPB will be looking for ways to protect people’s points, stop bait-and-switch scams, and promote a fair and competitive market for credit card rewards.”

The complexities of rewards programs — while sometimes a net negative for consumers — won’t stop consumers from wanting to earn more for their purchases. A recent Ipsos poll found that 80% of respondents value the rewards they earn, and 68% prefer using their credit cards because of the rewards they can earn. And, consumers are earning significant value from their cards, with more than $40 billion in credit card rewards dished out in 2022, according to the CFPB.

What Consumers Should Keep in Mind in 2024

These hearings are a net positive for consumers as the government will continue to hold both the issuers and rewards programs accountable. However, there are also tactics participants in these programs can use to ensure that they aren’t getting the short end of the stick.

Earn and Burn With a Plan

When I talk to friends and family, there’s 1 mantra I regularly communicate: if you’re hoarding points, you’re missing the point.

Credit card rewards shouldn’t be something anyone amasses for 2 core reasons:

• Rewards depreciate in value over time as loyalty programs regularly go through devaluations to keep their balance sheets in good standing
• Rewards should be redeemed to either help your financial situation, or even better, travel the world and experience other cultures

As you’re earning, it’s vital to have a plan to redeem the rewards. Once you have enough rewards to take that trip, take it. If you kick the can down the road, your rewards could become devalued with no notice.

Avoid Credit Card Debt Like the Plague

Credit card debt has become a significant issue for consumers, and it’s valid to suggest that incentives for rewards are part of the problem.

Research shows that credit cards can act as the jet fuel for consumer spending. Many consumers do the mental gymnastics of justifying the rewards on their credit cards as a rebate of sorts for spending they would do anyway. However, when overspending, interest and fees eat into the rewards, and it quickly turns into a losing situation for consumers.

However, that doesn’t mean everyone should avoid credit cards. It simply takes discipline to control your spending and pay your bills in a timely manner. If you can do that, the rewards you earn from your spending can save you thousands in travel costs.

Final Thoughts

It’s refreshing to see government regulators holding both financial institutions and loyalty programs to a higher standard. Consumers deserve to get the value they earn from their spending. However, the onus is on credit card holders to ensure they use credit cards responsibly and earn rewards with a goal in mind.