As rewards credit cards face regulation, what are the alternatives?

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By Christopher Elliott

Ronald Duben is ready to give up his credit card. He thinks there’s something better out there — and there almost certainly is.

Duben has been dutifully shelling out $120 a year for his co-branded airline rewards card, which promises he’ll get “free” flights if he spends enough money. It was a good deal at first. Once he collected about 60,000 points, he could cash in his rewards for a flight to Asia.

But when Duben tried to redeem his loyalty points for an economy class ticket to Japan recently, he was stunned that his airline more than tripled the miles he had to pay. Then it asked him for another $375 in taxes and fees on top of the 200,000 points. 

So much for “free.”

“I feel like I’m deeply involved in a rip-off,” says Duben, a retired chef from San Rafael, Calif., “and I want to get out.”

It turns out there is a way out.

Making a U-turn on rewards credit cards

Rewards credit cards — and especially those high-fee, high-interest mileage-earning credit cards — are not for everyone. You’re probably just as likely to pay an absurdly high interest rate and add to that $1 trillion in credit card debt as you are to get a “free” airline ticket.

The government is concerned about these cards, too. Earlier this month, the Consumer Financial Protection Bureau (CFPB)  issued a report on rewards cards that identified multiple problems with these payment systems. Consumers complained that rewards are often devalued or denied even after they meet program terms. And consumers who carry revolving balances often pay more in interest and fees than they get back on rewards.

The CFPB and the Department of Transportation also held a hearing on rewards credit cards, a likely precursor to regulating these programs. 

So if this is the beginning of the end for rewards credit cards, then what’s next?

Here are the alternatives to rewards cards

Read a travel blog, Instagram account or newspaper travel section and you might think the only way to travel is with one of those high-fee travel cards. But there are other ways to pay:

A debit card

A debit card or bank card deducts money directly from your bank account. No need to worry about spending more than you have because it usually won’t let you overdraw. “Debit cards are a straightforward option,” says Shawn Plummer, a financial expert and frequent traveler. “They’re widely accepted and eliminate the risk of accumulating debt because they only allow you to spend what you have.” (Related: Uber banned him after he won a credit card chargeback. Is that allowed?)

Many debit cards even have travel benefits such as no currency conversion fees, but there are limits: Car rental companies and hotels may not accept a debit card. 

A no-annual-fee, low-interest-rate credit card 

You shouldn’t pay an annual fee for your credit card. And if you do a little research, you can find a card with less than a 10 percent annual interest rate. Hint: Check with a credit union. Many of these cards also have all the travel benefits you need, including coverage for car rentals and medical evacuations – and no currency exchange fees. (Related: I canceled my cruise, but my $19,148 credit card claim is lost at sea.)

By the way, if you do want to pay a membership fee, try joining one of the warehouse clubs like Sam’s or Costco. Peter Hoagland, a consultant from Warrenton, Va., swears by his Costco Visa. He says it’s a no-nonsense payment system with relatively reasonable fees. 

“I use the card everywhere,” says Hoagland.

Money transfer services

A service like Revolut or Wise will allow you to transfer money to a company or individual, completely bypassing the credit card network. These companies are on the bleeding edge of digital banking. I visited Wise’s headquarters while I was in London recently and really loved its plan to remove “all the friction” between you and your money. That means eliminating a lot of the high fees you’ve been paying for years. (Related: Why did Lyft reject my credit card?)

Andy Abramson, a communications consultant from Las Vegas, uses both and likes the speed of transfer and the favorable exchange rates when moving dollars to another currency. 

“They’re both incredible,” he says.

What is the future of payment systems for travelers?

Are rewards credit cards obsolete? Have they become bloated and inefficient, with their high swipe fees and exorbitant interest rates and empty promises of free tickets? Some industry watchers believe the answer is yes.

As an intermediate step, many travelers are switching to a debit card or a digital payment system. That allows them to lower their interest rates and make smarter decisions about their purchases instead of mindlessly spending money to accumulate points or giving all of their loyalty to one airline. (Here’s our guide to credit card charge backs.)

Financial experts see a better future just ahead. It’s a place where digital peer-to-peer payment systems are used to transfer money at virtually no cost to you. In that future, cards are as antiquated as traveler’s checks. All transactions happen on a phone with a tap and a biometric “OK.” And loyalty programs have evolved into something more sophisticated than today’s bait-and-switch cards that just make you spend more.

Will the government regulate rewards credit cards?

After this month’s joint hearings with the CFPB and DOT, one thing is certain: Rewards credit cards will be regulated by the government soon. 

Even if regulators don’t act, Congress could. A new bill called the Credit Card Competition Act could bring much-needed competition to credit cards. Notably, it would force networks to compete over fees and potentially reduce swipe fees for merchants. That might bring some sanity back to credit card rewards programs, which would benefit consumers.

It’s about time. Rewards credit cards make promises they can’t keep, bait you into spending more than you should, and ultimately reward only the airlines and credit card companies that issue trillions of often worthless points. The sooner you find an alternative, the better.

That’s what Duben, the retired chef who wanted to go to Japan, did. He clicked on the United Airlines website and booked a regular ticket. He’ll use his miles for another ticket and then close his rewards credit card for good.

Do you plan to switch from your current rewards credit card to another payment method?

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Christopher Elliott

Christopher Elliott is the founder of Elliott Advocacy, a 501(c)(3) nonprofit organization that empowers consumers to solve their problems and helps those who can't. He's the author of numerous books on consumer advocacy and writes three nationally syndicated columns. He also publishes the Elliott Report, a news site for consumers, and Elliott Confidential, a critically acclaimed newsletter about customer service. If you have a consumer problem you can't solve, contact him directly through his advocacy website. You can also follow him on X, Facebook, and LinkedIn, or sign up for his daily newsletter.

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