Fact Checker: Would credit card competition bill end points programs?

If you’ve been streaming TV in the last month, you might have seen an ad saying a new piece of legislation in Congress was going to abolish credit card reward programs.

The ads take viewers to the fictional town of Point Less, Kan., where credit card points were eliminated.

"Would you want to live in a world without points?" the ad asks before introducing Point Less Mayor Aaron Abbotson (he became mayor, the ad says, because his name is first in the alphabet, because the town apparently also doesn’t count votes). Abbotson leads viewers around the town to show how hotels and restaurants are struggling since points programs went away.

“You know, we could be open all week if folks could still use their rewards points at the hotel across the street,” a server tells Abbotson in a longer version of the ad available online.

American Free Enterprise Action announced the seven-figure ad buy in December. The sponsor is affiliated with the American Free Enterprise Chamber of Commerce, formed in May and including as chair former Iowa Gov. Terry Branstad, KCCI TV reported.

The group wants to compete with the U.S. Chamber of Commerce, which also has a mission of advocating for American businesses.

Analysis

AmFree Enterprise Action opposes the Credit Card Competition Act of 2022, versions of which have been introduced in the U.S. House and Senate.

The legislation would require banks with more than $100 billion in assets — think national bank chains — to give merchants a choice of which payment network they use for processing credit card transactions.

Right now, Visa and Mastercard combined control 80 percent of the market, NerdWallet reported. The proposed legislation would require large banks to offer at least one payment network not affiliated with the major players.

The goal is to reduce fees merchants must pay to the bank every time a customer pays by credit card. These swipe fees are one of the primary ways banks make money from offering credit card services, but can be a burden on small businesses, according to Sen. Dick Durbin, D-Ill., who co-sponsored the Senate bill in July.

“Credit card swipe fees inflate the prices that consumers pay for groceries and gas,” Durbin tweeted in July.

If you’ve ever shopped at a store or restaurant that gives you a discount for paying with cash, that’s a business trying to save money on swipe fees.

But critics of the legislation say it may not result in lower prices and will cause banks to do away with programs that reward users with cash back or other perks.

When The Gazette reached out to AmFree to ask for sourcing on their claim that points programs would end if the Credit Card Competition Act were passed, Gentry Collins, former executive director of the Iowa Republican Party who now is chief executive officer of the AmFree Enterprise Chamber of Commerce, replied by email:

“American consumers were stripped of their debit card rewards, points, and benefit programs over a decade ago when the same policy targeted debit cards.”

Durbin in 2010 sponsored an amendment on the Dodd-Frank Act that put a cap on the swipe fees charged to merchants for debit card transactions. There are anecdotal reports, including from Pointsguy.com, that debit card points programs went away after that legislation.

NerdWallet reports Britain and Australia, which have capped swipe fees, have fewer rewards benefits and annual fees to cardholders have increased since.

However, the Reserve Bank of Australia in the 2012 report cited by NerdWallet, goes on to say: “At the same time, merchant service fees — the fees charged to a merchant by its acquirer — have declined, with the benefit likely to have been passed on to all consumers, not just those who pay by credit card.”

Christopher Odinet, a University of Iowa law professor who specializes in commercial/consumer finance, said it’s not certain how the Credit Card Competition Act would affect points programs and fees to cardholders. This legislation uses a different mechanism than capping swipe fees.

“It’s really hard to say what credit card companies will do,” he said. But it’s true one of the sources of income for banks to offer rewards is swipe fees, he said. “If credit card companies are collecting less in swipe fees, they may not be able to offer as many reward programs.”

The people who benefit most from reward programs are big spenders who pay off their credit card bill every month. A 2018 Federal Reserve report said fewer than half Americans surveyed by the organization regularly paid off their credit card bill in full.

“It’s only upper income individuals who enjoy credit card rewards programs,” Odinet said.

Conclusion

The Credit Card Competition Act ran into hurdles in both houses of Congress last year when they were controlled by Democrats. Now that the House is controlled by Republicans, its chances of passage may be even slimmer.

As Odinet said, it’s impossible to know exactly how large banks would respond to the legislation if it passed, but odds are good they will find new ways to make up for lost swipe fees. That may be by reducing points programs or raising other fees.

But the implication the end of credit card points programs would devastate the economies of cities and towns seems to be fear mongering. For that, we’ll downgrade the ads from what would have otherwise been a B to a C.

Criteria

The Fact Checker team checks statements made by an Iowa political candidate or officeholder or a national candidate/officeholder about Iowa, or in advocacy ads that appear in our market.

Claims must be independently verifiable. We give statements grades from A to F based on accuracy and context.

If you spot a claim you think needs checking, email us at factchecker@thegazette.com.

Members of the Fact Checker team are Tom Barton, Elijah Decious, Erin Jordan and Vanessa Miller. This Fact Checker was researched and written by Erin Jordan.