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Are credit card rewards and airline frequent flyer programs too complicated? The Consumer Financial Protection Bureau (CFPB) thinks so. Now, the government agency is considering cracking down on these kinds of rewards programs, according to a recent report from the CFPB.
In a joint hearing Thursday with the CFPB and the U.S. Department of Transportation (DOT), a panel of representatives from small airlines, banks and consumer advocacy groups, argued that major credit card companies engage in potentially unfair or deceptive practices that might affect travelers. CFPB Director Rohit Chopra and U.S. Secretary of Transportation Pete Buttigieg moderated the panel.
Problems like vague or hidden conditions, devalued rewards, redemption issues and the loss of previously earned rewards are front and center.
“This is going to help and inform both the CFPB and DOT to take the next steps, because ultimately we want to make sure that every family is getting what’s promised and that we have a fair, transparent and competitive market,” Chopra said in prepared remarks.
Panelists were industry leaders, including representatives from smaller, low-cost airlines like Allegiant Air, Spirit Airlines, and Breeze Airways.
Representatives from the largest U.S. airlines were notably absent.
Hot topics regulators have their eyes on
“Bait and switch” tactics
The CFPB identified a trend that it calls “bait and switch" tactics, where credit card companies heavily market rewards programs, but hide the conditions in fine print.
One example is the requirement to keep an account open for a certain length of time to be able to keep the rewards earned through a sign-up bonus.
“I had to call customer service to find out that a requirement to keep the account open for 12 months was not anywhere in the glossy, colorful marketing letter … but instead no doubt buried deep in the fine print,” according to one complaint in the CFPB’s report.
Redemption challenges
Not only are customers having trouble earning rewards, but redeeming them as well. The CFPB’s report called out customer service issues, technical glitches, difficulties transferring rewards and the lack of award availability.
Morgan Harper, the Director of Policy and Advocacy at the American Economic Liberties Project — a nonprofit that advocates for corporate accountability legislation — pointed out that when loyalty programs launched, airlines generally had more available seats than they do today. That has caused airlines to either require more points for the same seat, or to not offer award availability, period.
Confusion around point values and devaluation
What is a point worth? A NerdWallet analysis of 18 major airline loyalty programs in 2024 found that airline miles are worth anywhere from 0.8 cent to 1.4 cents. But that’s just a baseline value. Actual values differ based on the comparable cash fares, class of service and route.
Credit card rewards points, meanwhile, can fluctuate in value based on how savvy a traveler is at booking rewards with transfer partners.
“I’ve found myself sometimes on a flight doing the napkin math,” Buttigieg said during Thursday’s panel. “If they are selling me a sandwich for $14, or I can get it for 11,000 points, I find myself calculating the value of points.”
Because of airlines’ opaque currency and dynamic pricing systems, customers don’t have a good sense of the value of their rewards. Programs also regularly devalue their points by raising the number of points required to book the same travel services.
Loss of rewards upon account closure
Then there’s the question around what happens to your points when you close an account. The CFPB report highlighted how rewards disappear through expiration policies or upon account closure. According to complaints submitted to the CFPB, some customers feel those policies aren’t actively communicated.
And some accounts are closed involuntarily. Issuers may close an account for many reasons, like if the customer is in default, the account is inactive or a major change has occurred, such as a significant credit score drop. Some customers have complained that unexpectedly losing rewards on top of losing credit line access is particularly painful.
Do reward programs need government regulation?
The CFPB received more than 1,200 complaints about credit card rewards in 2023. That’s a 70% increase over pre-pandemic levels, and it’s one of the reasons that CFPB is investigating the matter further.
However, many frequent travelers and tourism organizations expressed during the hearing that they don’t want the government to touch their rewards.
Some tourist-oriented companies say rewards encourage more travel — thus providing more business.
“In 2020, we lost $6 billion in our tourism industry due to COVID-19,” said Elliott Summey, CEO of Charleston International Airport during Thursday’s public comment period. “We can’t afford another blow.”
Other travel industry experts suggest that if loyalty programs are really that bad, consumers will self-select out.
“The incentives for airlines to get it right are aligned,” said Tiffany Funk, co-founder at travel reward search platform Point.me, in an email. “Consumers don’t tend to continue to engage with companies they feel are abusing them. Airlines and consumers both benefit when earning and redeeming points is a positive experience.”
Thursday’s panel was one of the early steps in assessing whether government regulators will need to get involved to make airline and credit card rewards more transparent.
“The CFPB will be looking for ways to protect people's points, stop bait-and-switch scams, and promote a fair and competitive market for credit card rewards,” Chopra says.
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