Robert Silk
I don't have one airline credit card. I have two. And I have no plans to get rid of either of them.
My Southwest Rapid Rewards card more than pays back its $69 annual fee with the awards points I earn. And my United MileagePlus card covers its $95 annual fee via awards points and free checked bags. In addition, I also almost never carry a balance, which means I'm not giving back the value of those awards points in the form of interest payments.
But not everyone has the same spending and travel habits as I do.
Last month, the DOT and the Consumer Financial Protection Bureau (CFPB) held a joint hearing as they consider whether to impose new regulations on credit card rewards programs -- most prominently airline programs.
Airline co-branded credit card programs have grown quickly since the pandemic, bringing billions of dollars in revenue to the airlines while offering consumers the opportunity to earn perks like free flights and retail goods. But as panel participants pointed out at the hearing, those carrots also come with sticks.
Rewards cards tend to have higher interest rates than cards that aren't associated with a loyalty program, multiple panelists said. In addition, consumers who use rewards cards generally make more frequent and more expensive purchases than those who don't, according to Apple Credit Union CEO Andrew Grimm.
As a result, such cards are playing a significant role in rising consumer credit card debt. In 2022, Americans paid $130 billion on credit card interest and fees, CFPB director Rohit Chopra said at the hearing. And that metric surely increased last year as average credit card balances rose 10%.
One reason the regulatory bodies are honing in on airline rewards cards, DOT secretary Pete Buttigieg said, is that many consumers treat their points or mileage balances like savings accounts. But these aren't normal savings accounts, because the airline that administers each awards program has the prerogative to devalue points or increase reward redemption prices at its own discretion.
Notably, an analysis by the consulting firm IdeaWorks shows that the lowest daily average price of tickets purchased with points or miles was up 28% in March compared with March 2019, a figure that exceeded inflation by 7 percentage points.
At the hearing, some panelists, especially those representing consumer groups, spoke disparagingly about the major airlines' co-branded credit card programs, characterizing point devaluations as a bait-and-switch on consumers and also calling out airlines' lack of transparency in terms of points valuation.
But there are other perspectives. Tiffany Funk, co-founder of the points and rewards travel search platform Point.me, told me recently that rewards programs are to a large degree self-policing.
"At the end of the day, the ultimate goal for a loyalty program is to have customers positively engaged with their airline," she said.
If an airline gets too frisky with devaluations and the like, it will fail to achieve that goal.
To shield against devaluations, Funk suggests that credit card shoppers choose a card, such as Chase Ultimate Rewards, from which points can be transferred to various airlines.
More generally, she's of the same opinion as me. Before accepting one of those generous sign-up bonuses offered by airlines, travelers should consider whether the annual fee and interest rates of a particular card will negate the positive impact of point accrual. For consumers like me who travel often and don't carry monthly balances, the answer may likely be yes. But for those who do carry balances, that analysis could well yield a different conclusion.