Airline Rewards Programs Under Scrutiny by the Biden Admin

White House officials and regulators are probing what they say are issues with airline credit card programs, including the devaluation of points, high interest rates and the stripping of travel benefits.

Americans tend to have a love-hate relationship with airline credit card programs: Putting day-to-day spending on these cards can feel like an easy way to earn quote-unquote “free” trips — and the perks can make air travel a more luxurious experience — but officials say they’ve heard a laundry list of consumer complaints about how these programs are structured and operated.

Credit card and airline reward programs have ballooned in popularity in the last few years amid the post-pandemic rebound in travel: According to one estimate, roughly 30 million Americans have airline credit cards that generate $23 billion a year. Secretary of Transportation Pete Buttigieg tells Money that for some big airlines, the profitability of these programs now “rivals or exceeds that of actually flying planes.”

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Consumers increasingly think of their rewards balances as part of their savings, he says, but what those points are actually worth — both now and in the future — is unclear.

“A lot of us build up our savings in our points accounts just like we do in our cash accounts. But unlike a bank account, your points or miles have a value that could be changed overnight by a company,” Buttigieg says.

Travel experts discourage fliers from stockpiling large amounts of rewards for exactly this reason: You can get burned if your airline of choice quietly decreases redemption values and you suddenly find that you can no longer afford the trip you’ve been planning on taking.

Airline rewards programs under scrutiny

The Department of Transportation (DOT) and the Consumer Financial Protection Bureau (CFPB) have been researching these issues for months, and they shared some of their findings in a hearing Thursday alongside airline executives, consumer advocates and other stakeholders.

Rohit Chopra, director of the CFPB, said that among their concerns are:

‘Bait-and-switch’ situations: Airlines sometimes market rewards they later take away from customers after they've already signed up for a credit card. For example, Delta and American Express took heat from cardholders last year when they announced they were reducing access to airport lounges. This can be frustrating for customers because airline cards often have “hefty” annual fees — several charge hundreds of dollars — and it can be difficult to get refunds when benefits are removed, Chopra said. (The Delta SkyMiles Reserve American Express card, for instance, costs $650 a year.)

Minimal competition: While smaller banks and credit unions often have consumer-friendly credit cards, Chopra said they struggle to compete with bigger players in the travel credit card space that have exclusive deals with airlines. In fact, “the largest credit card companies have made massive payments to airlines in exchange for that airline refusing to sell points and miles to competing credit card companies,” Chopra said.

High interest rates: Americans have troublingly high (and fast-growing) credit card balances, and officials argue that travel credit cards are exacerbating the issue. Put simply, it may be easier for consumers to rationalize big purchases if they know that splurge is getting them a step closer to a much-desired trip. Rewards credit cards can also have high annual percentage rates, or APRs, Chopra said.

Another part of Thursday's hearing touched on the aggressive marketing of these products. Officials were surprised when Sara Nelson, international president of the Association of Flight Attendants union, mentioned that about half of flight attendants are required to make announcements about credit cards on flights.

“In almost every case, there is an incentive for flight attendants,” Nelson said. “There are some flight attendants who are subsidizing their income between $10,000 and $15,000 a year through these programs.”

While flight attendants have mixed feelings about doing this, she added, they shouldn’t have to engage in credit card marketing to make enough money to pay rent.

Officials call for transparency in airline rewards

Ultimately, the Biden administration wants to see more transparency and fairness around credit card and airline reward programs, Buttigieg tells Money.

“I think a lot of us have had that experience of being on the plane and when they come around with the credit card pitch, they say, ‘This is going to get you X amount of miles, which is enough for two people to go to Hawaii!’ And you think, ‘I'm going to pay for my next vacation with this,’” Buttigieg says. “If they get you to make that decision with that pitch, that pitch better come true.”

Asked what actions or changes are coming next, Buttigieg says that’s still to be determined, but he emphasizes that officials are eager to try to address some of the issues they’ve identified. The agencies intend to closely scrutinize each major airline’s policies as part of the process.

“We don't have a rule cooked up, ready to go, or anything like that, but this information-gathering can lead to action depending on what we find,” he says.

Morgan Harper, director of policy and advocacy at the American Economic Liberties Project, urged the CFPB and the DOT to investigate what she described as deceptive and unfair business practices that hurt consumers and discourage competition.

“Preserving the value of retroactive rewards, standardizing these rewards' value, and requiring transparency about changes to program terms would bring much-needed protections to this market,” she said.

Not everyone agrees with this approach, though.

Iain Murray, vice president for strategy at the Competitive Enterprise Institute, wrote in a blog post Thursday that “millions of Americans use credit card air miles to plan vacations.” He also linked the hearing to the Credit Card Competition Act, which he wrote could “interfere with a well-working market” and hurt rewards programs, setting off a chain reaction that could lead to “fewer flights, fewer jobs, more crowded flights and higher fares.”

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