Jason Cover is joined by Mark Furletti and Jeremy Sairsingh to delve into the intricate world of credit card rewards programs.
In this insightful crossover episode of The Consumer Finance Podcast and Payments Pros, host Jason Cover is joined by Mark Furletti and Jeremy Sairsingh to delve into the intricate world of credit card rewards programs. Discover the various types of rewards, from points-based systems to cashback and travel miles, and learn how these programs are funded. The episode also explores regulatory perspectives, including recent CFPB guidance and state-specific laws affecting rewards programs.
The Consumer Finance Podcast x Payments Pros – Point-of-Sale Finance Series: Navigating the Complexities of Credit Card Rewards Programs
Host: Jason Cover
Guests: Mark Furletti, Jeremy Sairsingh
Aired: September 25, 2025
Jason Cover:
Welcome to a special crossover edition of Payments Pros and the Consumer Finance Podcast in our continuing series on point-of-sale finance issues. I'm Jason Cover, one of the hosts of the Payments Pros podcast. Today, I'm joined by my colleagues, Mark Furletti and Jeremy Sairsingh to discuss credit card rewards programs. Welcome aboard, Jeremy and Mark.
Jeremy Sairsingh:
Hello.
Mark Furletti:
Thanks.
Jason Cover:
Before we jump into today's episode, let me remind you to visit and subscribe to all of our blogs at TroutmanFinancialServices.com, and don't forget to check out our other podcasts on Troutman.com/Podcasts. We have episodes that focus on trends that drive enforcement activity, digital assets, consumer financial services, and more. Please make sure to subscribe to hear the latest episodes.
With that said, let's move on to credit card reward programs. Jeremy, you are maybe the expert I know on credit card rewards programs. I'm always amazed at your ability to reap the rewards of card reward programs. Maybe you could tell us a little bit about the types of reward programs out there.
Jeremy Sairsingh:
Sure. Just to kind of focus in on what we're going to be talking about today, we're really looking at reward programs that offer some form of return on spending with a credit card or a similar product that's used to make a purchase at the point-of-sale with the rewards usually taking the form of redeemable points or cash back. But I should quickly say, the world of loyalty programs is much broader than credit card rewards as one example. Maybe this doesn't exist anymore. You go to your local deli, and you have a punch card, and you get your 11th sandwich free. So, you're earning at a rate of one-tenth of a sandwich for every sandwich you consume.
You use other large reward ecosystems linked to merchant affiliate programs. So, say you want to buy a TV and you go to an airlines shopping portal, you click on the big box stores link, buy your TV. If all goes smoothly, you'll earn points on your purchase in your airline miles account, or maybe instead, or in addition to using an affiliate link, you use what's called a card link offer, where you register your credit card with the issuer to earn bonus points or maybe cash back. You can make a purchase, say, you buy that TV at the store's website or maybe at a brick-and-mortar location. Credit cards could also offer benefits that are arguably different than rewards.
So, many credit cards will offer hotel or airline loyalty status, maybe lounge access, travel insurance, credits for things like streaming services, or dining, or maybe hotel night certificates, or airline companion vouchers. These benefits can overlap with the spending-based rewards, such as maybe earning nights toward hotel loyalty status by hitting certain spending thresholds. But again, we're really focused on the rewards that offer a return on spending with the card, along with introductory offers when you first get the card, like sign up bonuses.
Jason Cover:
Jeremy, that all makes sense. Tell me a little bit more for cards in particular, what types of formats or programs do these often result in?
Jeremy Sairsingh:
There's three broad categories of rewards that a consumer might see within their credit card account when making purchases that are in rewards. So, you have points-based systems. These are reward points that can be redeemed in a number of ways, maybe for previous card purchases, almost like a cashback type credit, as well as via transfers to hotel, or airline, or other loyalty programs. These are broadly usable points, and some issuers have extensive ecosystems for using, and redeeming, and earning these points. The second category is cashback, which is probably the most straightforward one for consumers, but even here, there's a lot of variation, and we're increasingly seeing cards that offer cash in maybe less conventional forms like cryptocurrency. So, these cards act like cashback cards, but the earned currency is not dollars and cents.
Then, the third category, which many of us are familiar with, are the more traditional travel and airline miles cards, where instead of the more general points-based systems in the first category, customers earn airline, or hotel, or other types of loyalty points when shopping with a co-branded card. Then, at the end of the billing cycle, usually, although there's again variation here. At the end of the billing cycle, typically, these points will be deposited in the external account, say, with the hotel or with the airline loyalty program.
Jason Cover:
Jeremy, I feel like I'm getting an email once a quarter from my card issuer talking about tiered systems or elevated rewards for certain types of purchases. How do those work or how are those implemented?
Jeremy Sairsingh:
Sure. So, common feature across reward earning cards is tiered systems based on spending categories. So, it's common for a card to have maybe a one times earning rate, it's a one-point per dollar in general spending categories, but then say, have two times or three times, and maybe groceries, or travel, or airlines. These multipliers can be significant in certain categories, especially for the more premium cards, which also happen to have the highest interchange fees.
Jason Cover:
So, we have to pay attention to what type of purchases we're making on any given day with any given card.
Jeremy Sairsingh:
It's not always obvious from the consumer's point of view how a given purchase will code. Say, if you're at a hotel and you go to the hotel's restaurant, well, that code is lodging or dining?
Jason Cover:
Once I have earned points, you've schooled me repeatedly when I've talked to you about this that you shouldn't just necessarily keep them in the card's ecosystem, but you could transfer it to other types of ecosystems. It always strikes me is something like currency arbitrage out of the 1980s, and I'm always amazed how you do this. But can you tell us a little bit about how that works?
Jeremy Sairsingh:
A number of issuers have relationships with airlines or hotel chains. This is really the first category of points I was talking about earlier. You'll earn points with the issuer, but then, you have the option of transferring those points out to a particular airline or hotel chain. Sometimes, there are transfer bonuses. If normally, points to airline A transfer it one-to-one from the issuer. Maybe it will be one to 1.5. So, you'll get 1500 miles for every thousand points you transfer.
Jason Cover:
Mark, Jeremy is obviously the master of the rewards, but they must come from somewhere. Could you tell us how the card programs are funding all these various rewards? It can't be out of the goodness of their hearts.
Mark Furletti:
Sure, Jason. Generally speaking, there are no direct pass-through fees to the consumer for a rewards program. You would never see that someone would say, a card issuer would ever say, "Here's the card and it has rewards, and you must pay us a fee for us to give you rewards." Generally speaking, you don't see that. In terms of how issuers obtain economics in order to issue the rewards, there's not some one-to-one relationship between a particular source of revenue on a card and the issuance that funds the reward.
What you typically see is, issuers taking the various elements of the economics of a card program and devoting some of those economics fund the rewards program. So, what are kind of some key sources of economics? Well, one of them is the interchange. So, interchange is the discount that is when a card issuer, let's say, a consumer goes out and spends $100 on their credit card, the card issuer may only provide the seller with $97.50. The difference, the $2.50 is called interchange. The issuer will require the consumer to pay the full hundred dollars, but since it's only paying out the $97.50, they get to pocket the $2.50 difference.
That's called interchange and a number of commentators believe that interchange is a very key component of paying for rewards. So much so that there's been this bill that has been repeatedly introduced in Congress called the Credit Card Competition Act that would regulate interchange fees. Commentators believe that if that bill passes, one of the direct consequences of it is that there will be either lower rewards or no rewards programs anymore. That's probably at least in the minds of folks who kind of – economists who specialize in studying the industry - that's their belief.
I think other sources for a reward can be membership fees. So, a number of airline rewards programs have annual fees, and those annual fees can help offset the cost of rewards programs. I think another source, as Jeremy was talking about earlier, how you can have like extra larger rewards for certain types of purchases or maybe certain purchases from certain types of merchant. It's conceivable that merchants could agree to supplement some of these rewards programs by taking a greater discount when consumers, if there's like a targeted ad that says, spend $100 at x-merchant and get 5% rewards, perhaps the merchant could shoulder some of the cost of that. I would say the main sources would be interchange, annual fees/ membership fees, and possibly greater merchant discounts to which merchants agree.
Jeremy Sairsingh:
Just to add to that, interchange can vary significantly by card product. Some of the credit cards, especially with relatively high annual fees often have some of the highest interchange rates, which in turn can fund some of the rewards on those cards.
Jason Cover:
Mark and Jeremy, I'm sure you agree. We get constant questions from clients about surcharge, which is directly related to interchange. In my personal life, I see merchants surcharging cards more and more frequently, probably a separate podcast discussion, but directly related to that issue for sure. Jeremy, I guess it's a bit up in the air on any given day what CFPB guidance or regulatory activity is still on the books. But could you tell us a little bit about what the CFPB has said about rewards programs in the last few years?
Jeremy Sairsingh:
So, 2024 was kind of a big year for credit card rewards and interest from regulators. So, the CFPB under the Biden administration had launched a significant foray into credit card rewards. They held months of hearings, conducted and discussed market research around credit card rewards, and produced a number of publications on the topic. One of the first big ones was a May 2024 report that highlighted what the Bureau called consumer frustrations with credit card reward programs.
In that report, some of the complaint topics that were emphasized included reward evaluations, issues consumers had with redeeming rewards, and then, revocations, or claw backs of ostensibly earned rewards. This initiative culminated in December of last year when the CFPB issued a circular that was targeted at answering the following question. "Can credit card issuers violate the law if they or their rewards partners devalue earned rewards or otherwise inhibit consumers from obtaining or redeeming promised rewards?"
Unsurprisingly, the CFPB's answer to this question was, yes, that covered entities and their service providers, offering, providing, or operating rewards programs could violate federal prohibitions against unfair, deceptive, or abusive acts or practices, UDAAPs, even where the conduct in question was attributable to a third party, like a hotel chain. Now if you've been listening to this series on point-of-sale finance or just following in the news, you know a few things have changed at the CFPB since December, and that there are a number of prior actions that now have a big asterisk around them. But this is arguably not one of those. When the CFPB rescinded a number of prior guidance documents earlier this spring, this circular was not one of them, the December 2024 circular. The CFPB's emphasis in that circular was really on UDAAP, and many of the compliance issues raised here remain salient for the industry.
Jason Cover:
Jeremy or Mark, are there particular UDAAP issues we should be concerned with when creating rewards programs?
Mark Furletti:
For sure, Jason. There's a number of them. I think, obviously, you would want to evaluate each program or any particular program kind of based on its specifics. But not only are there a number of issues, but these issues have existed for quite a long time. Evidence of that is the fact that, before the CFPB guidance was issued, one of the I thought best resources for someone who is seeking to evaluate the UDAAP risk of a given program was actually a set of guidelines put out a long time ago by the National Association of Attorneys General. Specifically, they put it out in 1987.
Despite the age of that guidance, it's really useful. The way you can access that guidance oddly is that, it is an appendix to a Supreme Court case called Morales v. Trans World Airlines, which is a 1992 U.S. Supreme Court case. The case actually is deciding a question about preemption under the Airline Deregulation Act. So, it's kind of not relevant to, at least the stuff that we work on typically. But what had happened in that case was a bunch of State AGs had come out with this guidelines on airline miles, and then, was seeking to enforce that guidance against specific carriers. The carrier sued and said, state attempts to regulate them under state UDAP statutes were preempted. The airlines won and the Supreme Court struck down the guidelines and said that the AGs could not assert or enforce them.
Nevertheless, the court included this task force on air travel industry guidelines as an appendix to this case. If you read through that appendix, you will see that it hits on all of the same issues that the CFPB has hit on pretty hard that Jeremy outlined, devaluation. So, someone comes out with a rewards program that seems really rich, and then people adopt it at a much higher rate than maybe was expected. So then, the issuer of the program or the provider wants to kind of reel it back.
Instead of giving you, having an item cost 10,000 points, they want to make it cost 12,000. Or you can have imposed expiration dates on the points so that they expire, so that they can't be used. But you're trying to ratchet down how much value the consumer can get because it was unanticipated how much consumers adopted it. It also talks about blackout periods or just restrictions on redemption. So, airlines would have blackout periods like around holidays, for example, for airline miles. But the same thing can happen on any of these kind of points-based programs.
I think a big issue is how quickly you can change a rewards program. The guidance discusses at great length this kind of reliance interest that the consumer has for buildup. So, you can imagine if I tell you, "Hey, if you spend $10,000 on your credit card, you can get whatever reward it is, whether it's money, or points, or some type of special privilege." If you've been working on that all year, and you're at $9,000 and someone emails you and says, "Oh, forget about the $10,000 offer. It's now 15,000." You could see how the consumer has been relying on that acting consistent with it, and now, all of a sudden, they would feel like the rug has been pulled out from under them.
So, ensuring that there is a long period of notice, and in fact, the NAAG, National Association of Attorneys General, Guidance suggests that you should give people one-year advanced notice when you're making a change of that type. Now that may be rather long, but certainly, some advance notice so that the consumer can have time to adjust their behavior in light of it. Then, I think another key issue is claw backs. This is where some claw backs are perfectly fine and some claw backs may not be fine. So, a claw back that would be, I think, perfectly fine is a consumer buys something on their credit card for $2,000, they get rewards for that, they get 20 points or whatever. And then, all of a sudden, they return it the next week. I don't think it's inappropriate in that instance to reverse the bonus because they got the benefit of it, but then, they returned it. So, I don't think it's inappropriate to try to quote "claw back" there or reverse the 20 points against the original balance.
I think you have to be careful with claw backs that are more aggressive or based on the discretion of an issuer. The CFPB brings this up in its guidance that it's not fair to an issuer to reserve the right to kind of claw back in its sole discretion with some kind of vague standards and then exercise that right. So, I think there's marketing issues that we'll get into in a minute. But in terms of just kind of the operation of the program, it's like devaluation, expiration, restrictions on use, claw backs. Those, I think, are among some of the bigger issues.
Jason Cover:
Mark, you kind of alluded to it already, but it sounds like a lot of these issues or could stem from marketing, right? You make a claim that if you spend $10,000, you get X amount of rewards in return. Are there particular issues like that we need to focus on in marketing and related marketing disclosures?
Mark Furletti:
Yes, absolutely. I mean, I think our guidance would be to closely scrutinize any marketing claims that involve rewards. If not making broad sweeping statements that are not supportable by how the program works. To the extent clarification is needed, ensuring that there are disclosures about any limits that apply, or any caps, or to the extent that you're relying on a third party to deliver it, ensuring that the consumer understands that basically what's going on is we're going to facilitate the transfer of these points to the third party. But the third party, it's their obligation to deliver. Now we can talk about how far you can distance yourself from that, at least in the CFPB's view, but certainly ensuring that the consumer understands the role of the third party. A lot can depend on in the marketing.
Are there any material facts that would have swayed the consumer not to obtain the product had they understood them up front? To the extent there are such facts, that would be a material omission and it's a problem, so ensuring that those are disclosed.
Now, I think it's also not just in terms of the advertising, but also when signing up for the product, are these things made clear, so that there isn't any bait-and-switch risk trying to mitigate that risk.
Jeremy Sairsingh:
Mark, one particularly important area here is eligibility for sign-up bonuses. So, oftentimes, issuers or the membership rewards programs will have backend rules about, say, how many cards co-branded with this partner, any customer the rewards program could have, or how many times could a consumer get a sign-up bonus on the same card product. It's really important to disclose those upfront, because sometimes, you've had consumers who, after hitting their sign-up bonus spend requirement are told, you're not actually eligible because of this rule that may not have been disclosed to you upfront.
Jason Cover:
Mark and Jeremy, on that topic of third-party integration, I think in the marketplace, there's a lot of cards that are either co-branded, so the primary rewards might be driven by the co-brand partner. Or to Jeremy's point, there's airline rewards, so you have a third-party there. I increasingly see membership benefits that are related to discounts at a ride-share, or a delivery service, or things of that nature. Can you tell us a little bit about what the CFPB said about the risk with the third-party partners.
Mark Furletti:
Understandably, some card issuers say, "Well, look, we're going to transfer these points or ensure that our co-brand partner is aware that you've earned the points, but we don't control how that program, how the actual provider or underlying merchant, exactly how their program works, it's their program. So, the CFPB in that bulletin that Jeremy mentioned before, which has not been rescinded, basically answers the question, "Can the card issuer distance itself from the underlying provider of the of the goods or services associated with the points?” And say, “Look, that's not our problem."
The CFPB, as Jeremy said, said obviously no. Effectively, they are your service provider. You the card issuer are the entity that's effectively providing the rewards in exchange because it's promoting the use of the card issuer's own product. And to the extent that your partner, merchant partner devalues or terminates a program, or has a technical problem, and it makes it difficult for the consumer to redeem the points, or rewards, or get the benefit of the bargain that's your problem, card issuer just as much as it is might be the partners. So, it's kind of taking that standard third-party service provider analysis, which says that the consumer finance company providing the service is responsible not only for the services it provides through its own employees, through its own entities, but also through those of third-parties. Carries that analysis over to these third-parties in this case and says, they end up being the problems of the consumer finance company.
Jason Cover:
Mark, Jeremy, it seems to me that the primary concerns we've talked about are somewhat along the lines of common law, contract law, are your T&Cs enforceable? Do they make sense? And then, throwing in a dab of UDAAP, which is an ever-swishy concept. Are there black-letter laws either at the federal or state level we need to be concerned with?
Jeremy Sairsingh:
At the state level, there are not a lot of rewards-specific laws. You have general UDAP prohibitions that often mirror or expand on the federal UDAAP principles. One exception though is, New York, which has a credit card reward-specific law that was enacted in 2023. Now, the law largely tracks with the CFPB's focus on devaluations and program changes. Some of the notable features of that law are a 45-day notice period for program changes, and then, for impacted reward points, a 90-day grace period for redeeming them. The law also prohibits contractual waivers and provides for a private right of action.
Jason Cover:
Jeremy, what about a risk of folks that don't use their rewards terms? What happens with those?
Jeremy Sairsingh:
Every state has an unclaimed property law, and rewards that have cash equivalents could qualify as abandoned property. It's really a state-specific analysis, the dormancy period, how long the customer has to be inactive. With respect to the points can vary by state, reporting requirements can vary. The threshold question really there is, are these points cash equivalents, or otherwise covered by the unclaimed property laws? I'd say, the risk increases when the rewards are maybe redeemed as gift cards or converted into a cash equivalent. Bottom line, the more the rewards look like cash, the higher the risk that these unredeemed rewards sitting in a customer's account could be subject to unclaimed property reporting.
Jason Cover:
Sounds like that concern would be very program-specific and state-specific as well then.
Jeremy Sairsingh:
Definitely. When structuring a rewards program at the outset, it's important to think about how to characterize the rewards, whether to treat them as cashback or whether to use a point system is a threshold question that's often driven by these concerns about unclaimed property reporting.
Jason Cover:
Given everything we've talked about so far, what are the sources of potential risk here or sources of liability that folks would want to think about in designing a rewards program and operating it?
Mark Furletti:
Sure. So, as Jeremy noted earlier, some theories under which provider of one of these programs could get in trouble would include just common law of contracts. So, you promised X and you didn't deliver, you breached a contract. Relatedly, the quasi-contractual theory of unjust enrichment, "Hey, you got the consumer to do these things that you wanted them to do and you received the benefit of it, but then, you, the issuer received the benefit, but the consumer, that benefit caused you to be unjustly enriched. So, you could see a claim like that.
You also have, as we've discussed repeatedly, kind of this big UDAAP risk. In that Morales case, I talked about at least the State AGs, when they promulgated that guidance that got invalidated, it was pursuant to their state UDAP unfair deceptive or Unfair Deceptive Act or Practice law. A number of those would have private rights of action. You could also see consumers bringing class actions with these types of claims against the provider and you could see individual actions.
Then, I think another real threat is, of course, you have lots of consumer complaints, and then, the result is that a State AG or a federal regulator comes in and asserts its UDAP authority. So, I mean, I think the CFPB risk is probably lower today than it was before. But generally speaking, I think the State AG risk remains, if not is higher than it was previously. And then, the class action, if you don't have a solid arbitration provision with a class action waiver and some mass action countermeasures, I think you also have some exposure there.
Jason Cover:
One note on those arbitration provisions too. There's been some bad developing case law on arbitration provisions in the context of open-end credit with open-end terms. So, if you haven't checked up on that, something to take a look at. With that said, Mark and Jeremy, thank you so much for joining us today.
Mark Furletti:
Thank you, Jason.
Jeremy Sairsingh:
Thanks.
Jason Cover:
And thank you to the audience for listening to today's episode. Don't forget to visit our blog at TroutmanFinancialServices.com, and subscribe so you can get the latest updates. Please make sure to also subscribe to this podcast via Apple Podcast, Google Play, Stitcher, or whatever platform you use. We look forward to the next time.
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