Will Congress Kill Credit Card Reward Points in 2024?

There's a big battle brewing in Washington, D.C. that could change the future for millions of credit card rewards customers. A bill called the Credit Card Competition Act (CCCA) is being considered by Congress, and if it's passed and signed into law, it could radically transform the landscape of travel rewards credit cards.

Senator Dick Durbin (D-Illinois), one of the sponsors of the Credit Card Competition Act, has described the bill as a way to help consumers and small businesses. "American consumers are worried about inflation and rising prices, and credit card swipe fees are part of the problem," Senator Durbin wrote.

What is the Credit Card Competition Act? Could it be the end of travel rewards credit cards? Let's look at what this legislation means for credit card customers -- and let's start with a quick explainer about a topic that most people don't realize is such a big deal: credit card swipe fees.

Credit card swipe fees: What they are and how they work

Every time you swipe your credit card or use your card to buy something online, the merchant (restaurant, store, ecommerce site, bar, gas station, etc.) has to pay a small fee called a "swipe fee," also known as a transaction fee or processing fee. These fees are paid to banks and credit card processing networks (like Mastercard and Visa) that work behind the scenes of the financial system.

No one loves paying credit card fees, but they have a purpose. Credit card transaction fees are used to pay for the complex "plumbing" in the back end of the banking system. A lot of technology, effort and oversight is needed to help get credit card transactions approved, move money between banks, and make payments flow quickly, securely, and smoothly. This elaborate processing system handles more than 50 billion credit card payments in the U.S. each year.

Credit card processing fees amount to a small percentage of your total transaction price, and the fee is not paid by the consumer, it's paid by the merchant. The average credit card processing fee is around about 2.24%. So if you buy a $100 pair of shoes, the price you see on your credit card statement is $100, but the shoe store has to pay $2.24 of that money in swipe fees. Out of that $100 that you pay for your shoes, the shoe store gets $97.76 of revenue.

Consumers don't usually notice or care about credit card transaction fees, but all those "small" swipe fees add up to a big pile of money. As of 2022, U.S. credit card companies earned $126.4 billion from credit card processing fees. Credit card fees are a necessary cost of doing business; most retailers, restaurants, and small businesses want to give their customers the convenience of paying via credit card. But all those everyday swipe fees can put a dent in profit margins, especially for small businesses.

What is the Credit Card Competition Act trying to accomplish?

Mastercard and Visa, two large credit card processing networks (you've seen their logos on the front of your credit or debit cards), control over 80% of the U.S. credit card network market. The Credit Card Competition Act would require America's largest credit-card issuing banks and financial institutions (with assets over $100 billion) to allow their credit cards to use at least two credit card networks, at least one of which cannot be Mastercard or Visa.

The goal: give merchants more choice for which credit card network to use when processing payments, and create a more level playing field for the smaller credit card networks like Discover and American Express. This competitive pressure could motivate big credit card networks to charge lower fees, leading to lower costs for merchants, which could then pass the savings on to consumers.

Why the Credit Card Competition Act is bad for credit card reward points

Here's one good thing about credit card transaction fees: they help pay for all those fun credit card rewards programs. If you've ever gotten free frequent flyer miles, extra bonus points, a free night at a hotel, or cash back on everyday purchases because of your credit card rewards program, you can thank transaction fees.

Credit card companies use some of the extra cash generated by transaction fees to reward their best customers, and to encourage people to keep swiping those cards. If the Credit Card Competition Act passes, banks might have less money available for credit card rewards -- and might stop offering credit card reward points altogether.

There are strong disagreements about whether credit card rewards would totally go away if the CCCA becomes law. A statement from the National Restaurant Association (which supports the CCCA) argues that credit card rewards could still be offered. For example, banks have continued to offer debit card rewards even though similar regulations were passed in 2010 that drove down fees for debit card transactions.

But an editorial from America's Credit Unions (an opponent of the bill) argues that the CCCA would be a giveaway to big box retailers that would likely not pass on the savings to consumers, that it would wipe out credit card rewards points, that it would make credit card transactions less secure, and that it would raise costs for smaller financial institutions like credit unions. When a similar law was passed in 2010 to cap fees on debit card transactions, it was "a leading cause of the decline in free checking accounts offered by credit unions," according to America's Credit Unions.

Bottom line: As of Jan. 10, 2024, the Credit Card Competition Act has not passed Congress. If it does, and is signed into law, there could be big changes coming for credit card reward points.