Credit Card Reward Program Trickery

The Consumer Financial Protection Bureau (2023), received over 1,200 complaints involving credit card rewards. Which is reflective of a 70 percent increase over pre-pandemic levels. Some complaints are perennial issues such as the administration of credit card rewards.

Consumers are claiming credit card companies are denying them benefits after they met program requirements. Others suggest new problems have been created by the growth of co-brand credit cards and rewards programs where consumers can transfer miles or points to merchants. Issuers are primarily responsible for the offering and administration of credit card rewards programs. The complaints emphasize the credit card companies often claim there is little they can do about their own policies, technical systems, and partnership agreements. Prior CFPB research has shown that, for many borrowers, the benefits of rewards programs fail to exceed the costs of credit cards. Given this, it is important to better understand how credit card rewards programs directly affect consumers.

Consumers fail to receive promotional rewards when financial institutions impose vague or hidden conditions.

 The Consumers indicate that requirements detailed in the fine print of rewards programs’ terms and conditions do not match marketing materials, turning sign-up offers.

Consumers face obstacles in receiving their preferred redemptions when companies fail to quickly resolve rewards-related issues: Consumers describe customer service issues and technical glitches that block or delay their redemptions, often by preventing the transfer of rewards to a third-party merchant.

Consumers suddenly lose rewards when issuers unilaterally revoke previously earned balances: Consumers indicate that their points, cash back, and miles vanish when an account closes.

A Biden crackdown on airline credit card perks turns to airline loyalty programs. The administration has been cracking down on so-called “junk” credit card fees (Quartz Airline Loyalty Programs).

The Consumer Financial Protection Bureau held a hearing Thursday (accompanied by a blistering report) to call out what it said were deceptive practices behind the plastic. The criticism is part of the same push that has Biden cracking down on so-called “junk” credit card fees.

“More recently, we’ve seen credit card rewards taking center stage in the industry’s marketing campaigns, particularly in the form of frequent flyer miles and other proprietary points programs,” CFPB Director Rohit Chopra said in prepared remarks for the hearing. “The largest and most dominant airlines play a massive role in this market. Most of us have witnessed the blitz of advertising online, in our mailboxes, on television, and even while seated on an airplane, about airline-branded credit cards that make promises about frequent flyer mile sign-up bonuses, free roundtrips, and other travel perks.”

In March, American Airlines told investors that 80% of its revenue comes from customers who are members of its frequent-flyer program, AAdvantage. And the money isn’t just coming from rewards program members buying flights more often. The CFPB noted that credit card companies pay airlines directly in order to get their names into the captive speeches you may have heard a flight attendant make during a recent journey through the air.

“The share of revenue generated by loyalty programs for the biggest U.S. airlines increased from 12 percent in 2019 to 16 percent two years later, and the return on investment for frequent flyer programs was far higher than the profits on the core business of providing flights.”

Among the largest airlines in 2023, according to their latest annual reports:

• Delta Air Lines got $6.9 billion from its credit card partners
• American Airlines got $5.2 billion
• United Airlines got $2.7 billion
• Southwest Airlines got about $2 billion
• Alaska Airlines got $648 million
• JetBlue Airways got about $400 million

In a statement circulated to media outlets like NBC News, the Airlines for America trade group downplayed the suggestion they were taking advantage of their customers, claiming that “consumers have the power of choice when picking a carrier for air travel or a credit card for spending, with a wide range of options, to pick what best fits their need.”