Objective: To regulate the credit card market in a manner that protects consumer interests, maintains healthy competition, and ensures that credit card reward systems do not disproportionately benefit only high spenders or incentivize practices correlated with the creation of unsustainable consumer debt.
Policy Details:
- Reward System Cap:
- Implement a cap on the percentage of spend that can be returned to consumers as rewards. This cap should be set at a level where it still incentivizes use but does not encourage excessive spending or reliance on credit. For example, cash back or equivalent rewards might be capped at 2% of the purchase amount.
- Universal Reward Structure:
- Require credit card companies to offer a baseline reward rate that does not disproportionately favor high spenders. Additional rewards can be tiered based on spending but must ensure that even lower spend volumes receive meaningful incentives.
- Example: For every $100 spent on any category, the consumer gets $2 back or equivalent points, ensuring no category provides disproportionately higher rewards. If a card offers additional rewards for specific categories, these must be minimal and not change frequently, reducing the incentive for consumers to open multiple cards for category-specific rewards.
- Transparency in Rewards:
- Credit card providers must clearly communicate how rewards are earned and redeemed by offering a clear, easy-to-use tool to model a transaction by Vendor, purchased item, and amount or a detailed library where consumers can see how rewards are calculated for different types of transactions. At a minimum, more robust publication of how reward points or cash back are calculated, any conditions for redemption, and expiration policies to aid consumers in making informed decisions.
- Non-Discriminatory Rewards Distribution:
- Rewards programs must not discriminate based on the type of purchase or merchant category, ensuring that all types of spending (except for cash advances and balance transfers) are equally rewarded, preventing manipulation of spending towards higher reward categories. Rewards structures should be consistent across all purchase types to prevent the gaming of the system with rotating high-reward categories, thereby simplifying the decision-making process for consumers.
- Encouragement of Savings and Investment Rewards:
- Introduce options for rewards to be automatically invested into assets like Bitcoin or other inflation-resistant investments. Example: Instead of cash back, a consumer can choose to have their $3 reward from the grocery purchase invested into a Bitcoin savings plan or an inflation-indexed bond.
- Annual Review of Impact on Consumer Spending:
- The Consumer Financial Protection Bureau (CFPB) will conduct an annual review to assess the impact of these regulations on consumer spending patterns. Adjustments to the policy can be made based on these findings to ensure the policy does not inadvertently reduce consumer spending.
- Penalties for Non-Compliance:
- Financial penalties or adjustment requirements will be imposed on providers who manipulate or structure their rewards in a way that encourages risky financial behavior or significantly deviates from the spirit of this policy.
- Education Initiatives:
- Fund and promote financial literacy programs focused on awareness of risks, benefits, and complexity of multiple credit cards, as well as best practices for managing multiple credit cards including tools and information about using cash management and personal finance tools. Risks, awareness, and complexity include increased financial risks associated with multiple lines of credit, increased cash management complexity with multiple credit cards, how credit card rewards work, emphasizing wise use of credit and the understanding that rewards should not drive unnecessary spending.
- Data Sharing for Policy Efficacy:
- Credit card companies must provide anonymized data on spending and rewards redemption to regulatory bodies for analysis, ensuring transparency and allowing for data-driven policy adjustments.
Implementation:
- Phase-In Period: Introduce the policy with a phase-in period of 12 months, allowing credit card companies time to adjust their rewards programs.
- Public Feedback: Before full implementation, there will be a period for public comment, allowing consumers and industry stakeholders to voice concerns or suggest modifications.
Goal:
This policy aims to create a balanced environment where credit card rewards still offer benefits to consumers, promoting spending in a sustainable manner without leading to increased consumer debt or unfairly benefiting only those with high spending capacities. The policy ensures that while the allure of rewards remains, it does not become the primary driver of consumer spending decisions.
