In an effort to protect consumers from potentially exorbitant fees and interest rates, the Biden administration is turning its attention to credit card rewards programs. Government officials are raising concerns that credit card holders may be paying more in fees and interest than the actual value of the rewards they accrue.

The Consumer Financial Protection Bureau (CFPB) and the Department of Transportation recently held a joint hearing in Washington to discuss the need for new regulations. Representatives from airlines, financial institutions, unions, and consumer advocacy groups gathered to address issues such as sign-up bonuses, changes to point values, difficulties in redeeming points, and the forfeiture of rewards when cards are closed.

Of particular focus are travel rewards programs, especially those offered by airline-branded credit cards that allow users to accumulate frequent flyer miles. A NerdWallet survey revealed that 41% of Americans possess travel rewards credit cards, emphasizing the widespread impact of these programs.

Transportation Secretary Pete Buttigieg stated during the hearing that the administration aims to ensure transparency in the promises made by companies regarding rewards and determine if consumers are truly receiving the expected benefits. The scrutiny on credit card rewards programs is part of the broader crackdown on "junk fees" and pricing practices in industries such as financial services and airlines that are viewed as burdening consumers and contributing to inflation.

The CFPB, responsible for overseeing financial institutions, has previously taken action against credit card companies regarding sign-up bonuses. Last year, Bank of America was ordered to pay over $100 million for practices that included withholding or denying bonus points from thousands of consumers.

Now, federal regulators are shining a closer light on airline credit cards. With annual fees as high as $650 and average interest rates at 25.3%, these cards can be considerably more expensive than the average credit card, which often features no annual fees and lower interest rates averaging 24.7%, according to LendingTree.

CFPB Director Rohit Chopra revealed that if companies are found to have violated their promises to consumers, regulators may consider implementing regulations or even pursuing law enforcement actions. He expressed concern over credit card companies charging high interest rates while consumers may end up paying more than the value of the rewards they receive.

Consumer complaints have also surfaced regarding restrictions on using accumulated points, even for those who pay their bills on time and avoid interest payments. Buttigieg voiced concerns about sudden changes in the value of points, highlighting the airlines' control over determining the number of points required for a flight.

Trade organizations representing major airlines assert that there is intense competition within the industry for credit card loyalty, emphasizing consumer choice in selecting both air travel carriers and credit cards that align with their needs.

The Electronic Payments Coalition, representing credit unions, community banks, and payment card networks, pointed out that the value of rewards points has actually increased from an average of 1.4 cents per dollar spent in 2019 to 1.6 cents in 2022, according to CFPB data. The coalition labeled the regulators' scrutiny of credit card rewards as "politically motivated."

Loyalty programs have proven to be lucrative revenue sources for major airlines. Delta Air Lines reported $6.5 billion in revenue tied to its loyalty programs in the past year alone, while American Airlines revealed that 80% of its revenue in the current year will come from loyalty program members. United Airlines even valued its entire loyalty program at $21.9 billion when pledging it as collateral for a loan in 2020.

Consumers, like Lauren Randall of Norwalk, Connecticut, have expressed frustrations with credit card rewards programs. She cited an example where she applied for a travel credit card offering 40,000 miles upon sign-up, only to receive a promotion for the same card offering 60,000 points shortly after. Despite contacting customer service to request the better promotion, she was denied, deeming it a "bait and switch" tactic.

The Biden administration's push for tighter regulations on credit card rewards programs reflects its commitment to protecting consumers from potentially misleading practices and ensuring they receive the expected benefits. As the scrutiny intensifies, industry players must navigate the evolving landscape of loyalty programs while addressing consumer concerns about fees, transparency, and access to rewards.