Credit Card Reward Program Regulations May Be On The Way

by on November 15, 2013 · 17 comments

in Credit Cards, Credit FAQ, Debit Cards

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In the aftermath of the financial crisis, Congress passed financial regulations meant to add more oversight into the financial markets to hopefully avoid another crisis. In 2009 they passed the CARD act, which enforced new rules on credit card companies including how often they could change consumer APRs and how much they could charge merchants for debit transactions. As a result, in 2011 most banks stopped issuing mileage earning debit cards because it became too unprofitable to offer rich rewards on the reduced amount they could charge merchants for transactions.
CFPBRewards Regulation?
Another blow to the banking/credit card industry was the Dodd–Frank Wall Street Reform and Consumer Protection Act, which created the Consumer Financial Protection Bureau (CFPB) in 2011 as a central agency to protect consumers from predatory lending practices. While credit card interest rates and fees have been under the magnifying glass, rewards programs have largely been unregulated. However, recently I’ve been hearing rumblings about the government looking to regulate these programs, which is the central theme of this Bloomberg article that came out today.

“Consumers can face “detailed and confusing rules” about using rewards, CFPB Director Richard Cordray said in an e-mail yesterday. “We will be reviewing whether rewards disclosures are being made in a clear and transparent manner, and we will consider whether additional protections are needed.”

While this could mean a lot of different things, I wouldn’t be surprised for rules to be put into place around sign-up bonuses and making sure that rewards programs are marketed appropriately. I think this could also affect devaluations- meaning more timing and disclosures could be required if the value of points accrued drastically change. There have been a slew of airline and hotel devaluations recently- with United, Delta and Southwest being the most egregious. All three have extremely valuable credit card portfolios and perhaps they saw new rules coming and wanted to get in a big devaluation now so they wouldn’t have to worry about it for years to come- even if new regulations do actually happen.

My Thoughts
I’m not completely surprised by the Bloomberg article. Back in July of this year I wrote a post “My Credit Card Industry Outlook – What To Expect For The Rest of 2013 and Beyond” and one main issue that I deal with in working with credit card companies is that offers need to be compliant and transparent so that consumers know exactly what they’re getting when they submit a credit card application.

I think these rules could be good and bad. Based on TPG reader feedback and that from family and friends, I know a lot of people who have signed up for special offers and not received the bonus due to poor tracking or violating unpublished rules, such as being an existing cardholder even though the application was approved. Some credit card companies even change the sign-up bonus whether you’re logged into your account or click through different channels.

I expect any regulations to force credit card companies to add more disclosures to applications to make sure it is 100% clear whether a consumer is eligible for a bonus and also add more transparent tracking so that all spend requirements are displayed so there is no confusion about when the time to hit the spend requirement is met or not. Right now some companies start that clock when you’re approved, though that date can sometimes be confusing if your application goes into a pending status after submitting yet you receive a card in the mail at some point in the future.

Any new rules could have negative effects as well. If credit card companies are forced to offer standardized offers across all channels, it could mean less limited time offers and lucrative targeted offers. If sign-up bonuses become such a liability we could see a move away from bonuses and more into other areas like category spend bonuses and new reward options, which could require more spend and effort to achieve than the lucrative sign-up bonus we’ve all come to love.

However, I don’t think this is doomsday and some more rules and transparency (like not being approved for a different card than what you apply for) will be a win-win for everyone.

What rules or regulations would you like to see from the CFPB regarding rewards programs? Or do you want them to stay away and let the market take its course?

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • ROB

    once the gov gets involved, it is not about something better.

  • Lantean

    I would like to see a regulation that would prevent the programs from devaluing the miles we have already earned. Such as If I already have miles with United I should be able to redeem those miles at the awards rates at were in place while I earned those miles as long as those miles are not expired.

    Only the miles earned after the devaluation should be subject to the new, much less advantageous award rates.

  • Death of Free Enterprise

    Beware on January 10, 2014 a slough of CFPB regulations go into place, and the banks are not ready. Why are they not ready, the CFPB still has not said what the regulations mean… … …

  • Mark R.

    “I’m here from the government, and I’m here to help you”!

  • Mooper

    My god. They leave no aspect of free markets untouched. Let consumers regulate the award offers by voting with their business. When a company wrongs consumers, word gets out and it comes back to bite. No need to have Barney Frank biting as well!

  • Chris Duke

    Don’t count on seeing third party programs regulated, as the banks have no control over what United or Hyatt does with their programs.

    On the flip side, you could see direct card benefits (like free nights, free bags) regulated, as could you see card programs like UR.

    The bigger worry, to me, is the government trying to tax rewards. I also agree that bonus standardization could be an issue, and could mean the demise of targeted bonuses.

  • ROB

    remember the big government people knows what’s best for you than you do yourself. you are either stupid or a victim in gov’s eye

  • junblaze

    I never in my wildest dreams ever thought i would utter these words “man o man do I miss those Doubya Bush days”

  • dgirma

    If the govt wants people to understand their rewards program just mandate them to follow Thepointsguy on twitter and leave our frekinn programs alone


    This one’s been pending for quite long. Most people screaming “too much regulation”, don’t really see it from the merchant’s perspective. Its crazy to let it keep going on without any regulation or oversight.

    People dont realize, that higher rewards cards only means, the merchant pays more commission, and that leads to overall rise in price for the product.

  • D Girma

    Most businesses that are adverse to credit card merchant fees do so at their own peril. As a business owner myself I gladly pay the 1-2% fees so that my business can handle less cash and in turn have less employee theft, less remittance errors etc. The issue is that merchants get themselves into bad contracts without paying close enough attention. A buddy of mine that ran a coffee shop had a contract that gave him a low percentage fee that he was bragging about until i asked to see his contract and saw that he had a .25 per transaction fee while his average transaction is under $5.

  • globetrotter

    @Girma: Not sure where you live or who you bank with. In CA, I am not aware of any merchant services charge 1-2%. The bank fees range between 2.5-4%. We do not accept AE because they charge the highest fees and we all know it is not widely accepted. We also don’t accept Discover not because of the fees but it requires separate and more paper work. We also avoid those that require lock in contract. CC also are not a sure thing because of charge back disputes, stolen cc, fraud, etc… that cc issuers force the merchants to eat up the losses even when they take all necessary precautionary measures. Prepaid/ GC/ Loading cc are a mess if merchants are not vigilant. Just depends on what business you own and who your employees are.

  • Benjamin Szweda

    I say leave it alone. I’m also not a fan of the current CARD act which prevents a consumer from moving to a card with a higher annual fee (ie from DL Gold to DL Reserve) within one year of opening the initial card. I could see a rule preventing the cc company from forcing you into a higher free card, but when the consumer wants to move up, having a government body prevent it makes no sense.

  • Benjamin Szweda

    That would be a nice rule, but I could see the airlines get around that. If they had to honour a certain value with everyone’s old miles, they might make a devaluation more severe so in the end they still come out in the same place.

  • Ed Carney

    I would like a regulation where Dodd Frank falls off a bridge….And gone

  • iahphx

    Overall, I think the credit card companies do a pretty good job with their rewards programs. I would leave them alone.
    If there’s a problem in this space, it’s arguably with the airlines. As most of us know, it can be very difficult to redeem those miles for award travel without a lot of effort and/or expertise. That said, even the airlines seem to be promising less, so it’s harder to claim they’re deceptive (although I would argue that airlines which impose “fuel surcharges” on award tickets are being pretty darn deceptive).

  • disqust101

    Since when did banks care one whit about rules? Almost weekly we see new claims of fraud in every aspect of banking/finance, with multi-billion fines. But of course nobody ever goes to jail…

    This notion that government is the problem is as naive and ignorant as it gets. Did y’all “forget” what happened in ’08? That didn’t happen because government was breathing down WS’s neck – it happened BECAUSE nobody was watching the hen house.

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