The Hidden Truth About Credit Card Rewards Devaluation

Credit card rewards devaluation is happening right before our eyes, yet many cardholders remain unaware of this silent threat to their hard-earned points. As of 2022, three-quarters of all general-purpose credit cards were rewards cards, showing just how many of us could be affected by this growing problem. Whether you're saving points for a dream vacation or simply enjoy cash back on purchases, the value of your rewards might be shrinking without your knowledge.

In fact, the evidence of this troubling trend is mounting. Earlier this year, World of Hyatt made it more expensive to book 118 of its properties using points, while Southwest Airlines reduced the number of points earned per dollar on certain fares. Even more concerning, British Airways increased the points needed to book partner flights on American and Alaska Airlines by a staggering 60% over just twelve months. Unfortunately, these aren't isolated incidents but rather symptoms of what some experts call a "credit card rewards crisis."

This situation has caught the attention of federal regulators. The Consumer Financial Protection Bureau (CFPB) recently warned that some credit card companies may be engaging in "bait-and-switch" schemes by devaluing rewards points and airline miles, potentially violating consumer protection laws. The CFPB has already taken action against major issuers like American Express and Bank of America for illegal practices related to rewards programs. Despite these concerns, it's worth noting that formal complaints about credit card rewards are surprisingly rare, making up only about 0.09% of all complaints submitted to the CFPB.

Throughout this article, we'll uncover what's really happening with your credit card rewards, explain the legal protections that might help preserve their value, and share practical strategies to safeguard your points from unexpected devaluation. After all, those rewards you've been diligently collecting deserve to be worth something when you're ready to use them.

Why Credit Card Rewards Are Losing Value

The generous reward programs we've grown accustomed to are steadily losing their shine. According to a CFPB report, consumers earned over $40 billion in rewards on major issuers' general purpose credit cards in 2022, a 50% increase from 2019. Unfortunately, this surge in rewards hasn't translated to lasting value for cardholders.

"Rewards inflation" has become a significant problem as issuers and their merchant partners systematically increase the number of points required for redemptions. This effectively devalues points consumers have already earned. Furthermore, the average value of rewards earned grew from 1.4 cents per dollar spent in 2019 to 1.6 cents in 2022, yet many cardholders find themselves unable to fully capitalize on these benefits.

The CFPB has identified several concerning patterns. Notably, credit card companies often employ "bait and switch" tactics by burying critical terms in vague language or fine print, then changing the value of rewards after customers sign up and earn them. In some instances, programs marketed with cash back as a redemption option subsequently removed that option and replaced it with less useful alternatives like statement credits.

The economic impact is tangible. Considering that a dollar at the end of 2022 had 7.4% less purchasing power than it did at the end of 2021, rewards devaluation compounds the effect of broader inflation. Meanwhile, banks and card issuers are largely protected – if consumers carry a balance and pay the average credit card interest rate (currently over 20%), the rewards earned become virtually meaningless.

This trend appears to be accelerating. The number of consumer complaints about credit card rewards programs has risen dramatically in recent years. Consequently, approximately 30% of consumers see room for improvement in their rewards programs. About 31% find lengthy redemption procedures problematic, whereas 26% are frustrated by insufficient rewards for desired purchases.

For holders of cards like the Chase Sapphire Reserve, the real value of accumulated points increasingly falls short of expectations, especially as issuers continue to modify program terms with minimal notice.

What the Law Says About Credit Card Rewards Devaluation

Federal regulators have recently taken a strong stance against credit card rewards devaluation, signaling major changes for the industry. In December 2023, the Consumer Financial Protection Bureau (CFPB) issued a circular warning that credit card companies operating rewards programs may be breaking the law when they devalue rewards that customers have already earned.

The CFPB explicitly stated that card issuers violate federal law when they "devalue earned rewards" by deflating the value of accrued points or miles. This practice resembles what the CFPB describes as a "bait-and-switch" scheme—where companies lure customers with attractive rewards, then reduce their value after customers have committed.

Importantly, these legal violations can occur even when the devaluation is technically attributable to a third party. For instance, if your Chase Sapphire Reserve points suddenly buy less with an airline partner, the card issuer may still be legally responsible. The CFPB circular notes that "covered persons that offer, provide, or operate credit card rewards programs may be liable for an unfair or deceptive act or practice even when the material devaluation of rewards could arguably be attributed to the actions of a third party".

Additionally, the CFPB identified two other scenarios constituting potential violations: when rewards are revoked based on hidden conditions disclosed only in fine print, and when consumers have reward points deducted without receiving corresponding benefits due to technical failures.

Beyond federal regulations, state-level protections are emerging. New York enacted General Business Law § 520-E in 2021 (effective December 2023), requiring card issuers to notify cardholders "within 45 days" of any program modifications and provide a 90-day grace period for redeeming accumulated points.

The stakes are real—enforcement is happening. In 2012, American Express paid $85 million to 250,000 consumers after failing to deliver promised welcome bonuses. Similarly, Bank of America paid $100 million to consumers in 2023 for denying advertised sign-up bonuses to qualified applicants.

These legal developments signal that both federal regulators and state legislators are recognizing rewards devaluation as a legitimate consumer protection issue.

How to Protect the Value of Your Points

Protecting your hard-earned credit card points requires proactive strategies in today's rapidly changing rewards landscape. With rewards programs facing constant devaluation pressures, I've found several effective approaches to preserve their value.

First and foremost, adopt an "earn and burn" philosophy. Loyalty programs tend to devalue over time, so keeping points long-term is like storing money without earning interest—except worse, since points typically have higher inflation rates than actual currencies. Looking at redemption rates now versus a decade ago, many programs have increased point requirements by over 100%. This makes hoarding points a losing proposition.

When accumulating rewards, I prefer transferable points currencies like Chase Ultimate Rewards, American Express Membership Rewards, or Citi ThankYou points. These flexible currencies shield you from devaluations by offering multiple redemption options. Most financial experts value these transferable points at 1.7 cents each, generally maintaining this value better than single-program points.

Understanding redemption values is crucial. Credit card points function like foreign currency—their worth varies depending on how you use them. For example, Citi ThankYou points equal one cent when redeemed for cash but only 0.8 cents through Walmart's Shop With Points program. Moreover, Chase Ultimate Rewards points can be worth 2.8 cents when transferred to World of Hyatt compared to just 0.7 cents with Marriott.

Pay off your statement balance in full every billing cycle. Since credit card interest rates typically reach double-digits while rewards rates remain in single-digits, carrying a balance quickly eliminates any rewards value. Essentially, rewards become meaningless if you're paying 20%+ in interest.

Additionally, watch for expiration dates and limitations in the fine print. Some programs impose five-year expirations or revoke points after periods of inactivity. Furthermore, understand your card's benefits beyond points—travel protections, purchase warranties, and rental car coverage can add significant value.

Ultimately, the best defense against devaluation is staying informed and nimble—ready to pivot when program terms change.

Conclusion

Credit card rewards devaluation represents a growing threat that demands our attention as consumers. Throughout this exploration, we've seen how major rewards programs have quietly increased redemption costs, effectively diminishing the value of points we've diligently collected. Federal regulators have undoubtedly noticed these concerning practices, though their efforts to curb devaluation remain in early stages.

Smart cardholders consequently need to adopt protective measures immediately. The "earn and burn" philosophy proves particularly effective against devaluation, while transferable points programs offer essential flexibility during uncertain times. My personal experience has shown that cards like the Chase Sapphire Reserve can provide substantial value, especially when you understand how to maximize transfer partners before devaluations occur.

The rewards landscape continues shifting beneath our feet. Cardholders who stay informed about program changes ultimately maintain the most value from their rewards. Additionally, understanding the legal protections now emerging provides another layer of security against the most egregious devaluations.

This battle against rewards devaluation requires vigilance and strategy. Pay off balances monthly, favor flexible currencies, and redeem points strategically before they lose value. Your diligence in monitoring program changes will determine whether those hard-earned rewards actually fund your next vacation or simply disappear into the fine print. Therefore, treat your points like the valuable currency they are—because issuers certainly understand their worth.

FAQs

Q1. How are credit card rewards being devalued? Credit card rewards are losing value through various means, including increasing point requirements for redemptions, removing cash back options, and changing program terms with minimal notice. This "rewards inflation" effectively reduces the purchasing power of points consumers have already earned.

Q2. What legal protections exist against rewards devaluation? The Consumer Financial Protection Bureau (CFPB) has warned that devaluing earned rewards may violate federal law. Some states, like New York, have enacted laws requiring card issuers to notify cardholders of program changes and provide grace periods for redeeming points. Federal regulators have also taken action against major issuers for illegal practices related to rewards programs.

Q3. How can I protect the value of my credit card points? To protect your points, adopt an "earn and burn" philosophy, prefer transferable points currencies, understand redemption values, pay off statement balances in full, and stay informed about program changes. It's also crucial to be aware of expiration dates and limitations in the fine print of your rewards program.

Q4. Are all credit card rewards programs equally affected by devaluation? No, not all programs are equally affected. Transferable points currencies like Chase Ultimate Rewards or American Express Membership Rewards often maintain their value better than single-program points. The impact of devaluation can vary significantly between different rewards programs and redemption options.

Q5. Should I still use credit cards for rewards given the risk of devaluation? Yes, credit card rewards can still be valuable if managed wisely. However, it's important to choose cards with flexible redemption options, understand the true value of your rewards, and use your points strategically before they potentially lose value. Remember that carrying a balance and paying high interest rates can quickly negate any benefits from rewards programs.

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