How the Credit Card Compensation Act 2023 could destroy credit card rewards

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By: David Slavick, Co-Founder Ascendant Loyalty Marketing |

Posted on November 14, 2023

All loyalty marketing professionals should become educated on this topic

Today Congress has many problems and issues to address for the benefit of our country’s way of life and certainly as it relates to wars and conflicts overseas.

As legislators cope with these existential issues, they also choose to address a business construct from time to time motivated in a belief that it will benefit the consumer through protections against what they call unfair trade practices. Protecting the consumer’s interests predictably get high marks when positioned as “you didn’t know you were paying more for things and so we (Congress in this case) have figured out a way to make things better for you.” 

Well hold on for just one moment, because while that all sounds great on the surface, when you go deeper into this storyline – The Credit Card Compensation Act 2023 - you will be surprised to learn of the unexpected consequences. What may result from sincere efforts on the part of Senator Durbin (D-Illinois), Senator Vance (R-Ohio), Marshall (R-Kansas) and Welch (D-VT) is that the rewards benefits from credit cards that you love may be ending if this proposed legislation should become law.

Fees that credit card companies charge retailers as a percent of each transaction is part of doing business in today’s electronic processing world, a world which relies on the infrastructure of card processing to run our economy, and an infrastructure that relies on those very same banks and card companies working in concert with each other to monitor and prevent fraud 24/7/365. 

This infrastructure that all Americans and visitors alike, including those in Congress, seek assurance from as they transact business is essential to the flow of U.S. commerce. This applies to every payment transaction, whether cardholders decide to use their physical card at point of sale, enter their card via online transaction, access their mobile wallet using their phone, or indeed share their card number and 3-digit secure code on the back of their card.

Now, our government is suggesting that for the betterment of the consumer and in support of what government is responsible to do each and every day which is to “create and enforce the rules of a society, defense, foreign affairs, the economy, and public services, the rules of the road in this infrastructure need to change.  The underlying assumption of this proposed legislation is that the current business construct is unfair. No, it is not, and let me tell you why.

  • For Credit Card issuers, they predominately make their products free to apply for and use for the convenience of the consumer.
  • For Credit Cardholders, the decision to pay an annual fee for incremental benefits including accelerated earnings in the reward program, miles/points not expiring, or access or convenience benefits, is wholly up to each individual.
  • For retailers, it is understandable they would prefer to pay less in interchange fees as a percentage of tendered transaction value to the card issuers, so they indeed seek help from the government in order to reduce the cost of doing business.
  • The processors and the banks that support the infrastructure have their own interests to protect.

If you insert a new provider into the process (a central provision of this proposed legislation), retailers may achieve lower transaction processing costs, but there are risks to the current business models in place, for example:

  • The possibility of more fraud with less protections and security.
  • Weaker customer service to satisfy customers’ needs.
  • Slower transaction processing, less satisfying customer experience.

Inserting new companies into the credit card processing business model will ultimately reduce the share of market for the companies in the sector today.  As a result, those companies will have no choice but to reduce their funding of loyalty program benefits that are central to the success of the co-brand and general card rewards business. Other outcomes include reduced revenue for the banks, card issuers, and processors which translates into less operating revenue to give back to the loyal cardholders who choose to use those cards for payment every business day. Specifically:

  • Less cash back
  • Reduced access
  • Less Benefits
  • Longer Call Handling Times
  • Less Incentives and Promotions to Open an Account

The motivation and timing that Congress chose to threaten an industry that is so essential to our economy is odd, especially when there are many other hidden taxes Americans pay every day that are more damaging to family budgets.

Here are just a few areas where the credit card in most cases processes the flow of revenue to the retailer every business day and in turn takes spendable income out of the customers’ pockets. Perhaps the Senators from Illinois, Ohio, Kansas, and Vermont might want to explore:

  • Airline fees additive to your ticket for fuel, and seat upgrades
  • Hotel Accommodation or Occupancy fee or tax as a percentage of your total paid to the local city authority
  • Hotel Resort fees additive to your folio to pay for use of wi-fi, gym or pool
  • Cable TV fees additive to your subscription service
  • Hidden taxes on the price of gas at the pump
  • Lastly, on a local (Chicago) note, taxes on a restaurant bill are 10.75% percent, of which 0.50 percent goes to the City of Chicago – the highest in the nation.

To learn more, check out this study. The average American household pays close to $2,500 per year in hidden personal taxes. Certainly, middle to lower income individuals who enjoy the use of their credit card and appreciate getting rewarded for their preference and loyalty to those cards wouldn’t appreciate losing those rewards while at the same time continuing to pay hidden fees without the help of government legislation.

Editor’s Note:

We have written before about studies showing the impact of popular airline credit cards on Florida’s economy.  At the recent Ai Connect event, Co-brand & Travel Rewards 2023, Chuck Christiansen, Chief Revenue Officer, cxLoyalty made an impassioned plea for the those in attendance to contact their respective legislative representatives to voice opposition to the pending legislation known as the Credit Card Competition Act of 2023.

We urge you to learn more about this topic. Read Dick Durbin’s description of the law here, see what the Points Guy has to say about it, and visit this advocacy site in opposition to the proposed statute here. Form an educated perspective and then contact your legislative representatives.