The Credit Card Competition Act: Will it kill credit card rewards?

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People love credit card rewards. Almost one in three consumers (71%) have a rewards credit card. American households took home more than $60 billion in cash and rewards from credit card rewards programs, according to The Points Guy.

Many take their rewards for granted — but that could soon be changing.

Lawmakers are considering a bill to reduce “swipe fees” businesses pay. Supporters say it could lower costs for merchants and increase consumer savings. But others argue it would essentially end credit card rewards programs as we know it.

Here’s what you need to know about the Credit Card Competition Act — how it could affect your credit card rewards.

What is the Credit Card Competition Act?

The Credit Card Competition Act aims to increase competition and reduce credit card fees.

Retailers must pay an interchange fee if they accept credit card payments. These fees cover the cost of transferring funds from the customer's credit card to the merchant's account. Most fees, ranging from 1.5%-3.5% of the total transaction, go directly to the card issuer.

Visa and Mastercard control over 80% of the U.S. credit card market. This makes it hard for merchants to negotiate lower fees. The ubiquity of credit cards also makes it challenging for merchants to not accept the payment method.

Merchants have complained about these fees for years. Many say it impacts their profits and ability to stay in business. Some retailers have started passing the fee onto the customer as a convenience fee.

The idea behind the Credit Card Competition Act is that more competition between card networks would lower costs and drive innovation.

But not everyone agrees.

“By requiring large credit card issuers to support at least two processing networks, the act aims to challenge the dominance of Visa and Mastercard,” says Jeff Rose, certified financial planner and founder of GoodFinancialCents.com. “But I’m skeptical about whether creating more duopolies would genuinely foster innovation and lead to substantially lower fees.”

How your credit card rewards may be affected

The main concern of the Credit Card Competition Act is that it would limit credit card rewards.

Interchange fees are often used to fund credit card rewards programs. Lower interchange fees mean less money for credit card issuers. As a result, they may need to allocate less money towards funding rewards programs. This could potentially result in issuer changes to their rewards structure, including:

• Cutting back on earning rates
• Eliminating or reducing welcome bonuses
• Adding restrictions to the way you earn and redeem rewards
• Removing added benefits and perks
• Add or raise credit card annual fees
• Increase fees and interest rates

The unintended consequences of the bill may not be limited to just banks. It could also affect the airlines and hotels that sell millions of loyalty miles and points to credit card issuers.

If major travel providers lose part of their hugely profitable contracts with card issuers, the cost of travel may increase.

Remember that the impact on credit card rewards will depend on various factors. This includes how credit card issuers choose to adapt to the changing landscape. While lower interchange fees may put some pressure on rewards programs, credit card companies may also explore alternative strategies to maintain competitive offerings and keep customer loyalty.

The future of credit card rewards

Right now, the status of the Credit Card Competition Act is uncertain. After failing to pass as an amendment to the National Defense Authorization Act in 2022, the Act was reintroduced in June 2023.

Even if the legislation passes, it doesn’t guarantee the death of credit card rewards. In other countries with similar laws, rewards programs still exist, although they may offer less attractive perks or higher annual fees. Some issuers may continue to offer certain rewards as a way to maintain customer loyalty.

In the meantime, consumers should still enjoy their miles, points, and cash back rather than stress out over the unknown.

The bottom line

The Credit Card Competition Act aims to lower merchant fees and hopefully reduce consumer costs. Unfortunately, it may also diminish the benefits and rewards associated with credit cards. Even if the bill is passed, it’ll be a long, convoluted process. In the meantime, consumer rewards appear to be safe — for now.

Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.