This week, Sens. Roger Marshall (R-Kan.) and Dick Durbin (D-Ill.) sent a letter to the Department of Transportation (DOT) and Consumer Financial Protection Bureau (CFPB) alleging that airlines are conducting unfair, deceptive, and abusive practices through their loyalty programs. The senators are clearly attempting to antagonize airlines for their public opposition to Durbin and Marshall’s misguided Credit Card Competition Act (CCCA)—a bill that hands over more power to the Federal Reserve. Ultimately, the accusations made in this letter are nothing more than vacuous political retribution.
The CCCA would require the Federal Reserve to publish rules that would force credit cards issued in the U.S. to be enabled with at least two unaffiliated payment card networks. The ostensible goal of the bill is to let merchants dictate the networks to be used on consumers’ cards. This will result in a loss of interchange fee revenue, which is used to pay for frequent flyer programs. Enacting this bill could result in the termination of these programs—impacting approximately 30 million Americans with airline co-branded credit cards. According to data cited by the International Center for Law and Economics (ICLE), in terms of all types of rewards cards, “86% of credit cardholders have active rewards cards, including 77% of cardholders with a household income of less than $50,000.”
We know this impact is highly probable because it already happened with debit cards. In 2010, Sen. Durbin’s eponymous Durbin amendment passed Congress hitched to the Dodd-Frank Act. Soon after, media reports highlighted that banks were eliminating debit rewards programs. Clearly, the CCCA ignores the collateral damage inflicted on consumers.
In addition to giving more power to the Federal Reserve, the senators have decided that DOT and the CFPB should also be empowered to target private American companies. The letter asks DOT and the CFPB if they are aware of the alleged practices, and if they “have the regulatory authority needed to adequately protect consumers from these unfair and deceptive practices.” The senators are jumping to the conclusion that the practices are complicit in effectuating unfair and deceptive behavior. If the agencies respond to the letter by saying they do not have the proper authority, the senators imply they will introduce legislation to “enable DOT and the CFPB to effectively regulate airlines’ frequent flyer and loyalty programs.” The letter ends by hinting that the senators could introduce a bill and attempt to force it onto the larger Federal Aviation Administration (FAA) Reauthorization Act of 2023.
Evidently, the senators intend to introduce a bill that will increase the regulatory power of DOT and the CFPB. Proponents of free market principles should stand aghast at this reprehensible use of legislative power to regulate private enterprises.
This assault on airline co-branded cards and loyalty programs parallels President Biden’s partisan political agenda to wipe out “junk fees.” Just like the letter, President Biden uses words such as “unfair” and “deceptive.” If deception or fairness was truly an issue, consumers would simply drop enrollment in these programs since the costs would exceed the benefits. There are transaction costs associated with using points to purchase services, but airlines are already transparent about this and make it clear to consumers. Notably, many Republicans have been opposed to President Biden’s agenda. Senate and House Republicans have sent multiple letters to the CFPB opposing the vilification of legal service fees. It is disconcerting to see members of Congress target the airlines solely because they publicly denounced legislation that ultimately harms their businesses and the thousands of Americans they employ across the country.
While the exact outcome of this letter is still up in the air, one thing is clear—Durbin and Marshall are happy to empower the federal government to regulate the electronic payments system and target industries that disagree with their policy views. Between this letter and the CCCA, the Federal Reserve, DOT, and CFPB are all in line to score more regulatory authority to the detriment of airline employees and consumers who currently benefit from the availability of co-branded cards and rewards programs.