Eliminating credit card rewards would deal a blow to Florida's tourism economy

Author: John London

This Thursday, Consumer Financial Protection Bureau (CFPB) to hold hearing on credit card rewards issue.This is after Senator Dick DurbinIllinois Democrats tried and failed to hold hearings with the CEOs of multiple airlines and credit card companies in an attempt to eliminate credit card airline rewards. The hearings are part of a broader attempt to pass the Credit Card Competition Act (CCCA), which would severely limit or prohibit credit card companies from offering rewards programs. These proposals are not only misleading and based on specious factual assumptions, but they could also deal a severe blow to economies like Florida’s.

Banning credit card rewards programs would significantly disrupt Florida’s tourism industry. Consumers (regardless of income) have always used credit card rewards to offset the cost of travel and vacations. For a state that hosts the Formula 1 Grand Prix, multiple music festivals and is home to world-famous amusement parks, the proposal could prove costly. Recent estimates indicate that nearly 2.5 million travelers will use credit card miles to travel to Florida in 2022, and their travels will add approximately $3.76 billion to the Florida economy.

Supporters of CCCA claim credit card rewards are creating a “reverse Robin Hood” effect. They say lower-income households have less access to rewards credit cards than higher-income households but still have to bear the cost of interchange fees through higher prices over the counter. Furthermore, they claim these higher prices mean cash and debit card users are also subsidizing rewards programs for high earners. Supporters also claim that low-income households are more likely to be charged higher interest rates, so the interest costs will offset the benefits of the incentive program.

These statements are all wrong. A recent study by the Electricity Payments Coalition (EPC) shows that low-, middle- and high-income households earn and redeem credit card rewards at similar rates. Additionally, rewards card offerings targeting low-income households have increased to the point where low-income households are just as likely to have rewards cards in their homes as higher-income households.

The report also noted that there was little correlation between risk scores and income levels, meaning low-income households did not actually face higher interest rates. The study also addressed claims that rewards cards contribute to overall price increases at the counter. In fact, merchants often benefit from accepting rewards cards and therefore don’t have to reimburse interchange fees.

Ultimately, the proposal will fail to achieve its stated goals. Past experience shows that eliminating card rewards has little impact on lowering prices, despite eliminating or limiting interchange fees. The first Durbin Amendment effectively banned debit card rewards programs but had little effect on retail prices. Instead of changing course, the senator decided to double down and expand this failed policy into credit cards.

Restrictions on these popular incentives could be extremely damaging to the U.S. and Florida economies, especially as consumers increasingly rely on incentives to offset the effects of the recent surge in inflation. According to EPC research, more than $38 billion in unrealized rewards could be lost if these projects were shut down. This would essentially bail out millions of Americans who rely on these incentives as a safety net for unexpected purchases or to take a much-needed vacation come summer.

In an economy where daily visitors contribute $333 million to the state's economy, hindering tourism could cause significant harm to Floridians. If the CCCA passes, millions of travelers who redeem their air miles or offset their vacation expenses with cash-back benefits may think twice before traveling to the Sunshine State. This could have a knock-on effect across the state's economy, as local businesses would face a drop in revenue and mass festival attendance could drop.

Policymakers in Florida and across the country should think twice before passing such a misguided policy.

Juan Londoño is a senior policy analyst at the Taxpayers Defense Alliance.

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