Do you find credit card rewards programs confusing? Are your points easy to spend? Or are they like airline miles, so laden with restrictions that they seem, well, pointless?
Federal regulators say they are looking into the issue, which is making card issuers nervous. Consumer Financial Protection Bureau chief Rich Cordray confirmed to Bloomberg News this week that his agency is reviewing card policies.
“We will be reviewing whether rewards disclosures are being made in a clear and transparent manner, and we will consider whether additional protections are needed,” he said. Note that “reviewing” is not the same as investigating.
Consumers, and particularly business travelers, love rewards programs and the surprise bonus they provide for spending. The programs range from simple cash-back refunds to complex point accumulation systems that belong in a Jersey shore arcade (That teddy bear will cost you 98,000 points!).
Credit card rewards points have taken on added significance as debit card use has tailed off since the Great Recession. For the first time in 20 years, debit use has actually sunk, slightly, while credit use is up. Financial reforms have made debit transactions less lucrative for banks, which in turn are no longer steering consumers as heavily towards debit use. Many have canceled debit card rewards programs entirely, encouraging point-hungry buyers to pick credit, not debit, at checkout.
Credit card rewards are perhaps the best example of the winners and losers scheme elucidated in a landmark economics paper called “Shrouded Attributes,” published in 2005 by Xavier Gabaix and David Laibson. It describes the techniques companies use to hide, or shroud, the true price of products. In the paper, the two break the world of consumers into groups called “sophisticates” and “myopes.” Sophisticates are great at piling up miles points and take free vacations every year. Myopes screw up, make late payments, and generally end up falling for every Gotcha invented by corporations. The Myopes pay for the Sophisticates’ free vacations.
That’s fine, except when companies continuously to change the rules, turning Sophisticates into Myopes.
So, how do you feel about your credit card rewards? What’s the most arcane set of fine print you’ve seen with a points program? Tell me here, and I’ll look into it.