RBA regulations could eat your frequent flyer points

Frequent flyer mileage programs could soon be a thing of the past, if the Reserve Bank of Australia implements new credit card regulations.

The RBA plans to reduce the amount credit card companies are allowed to charge vendors. This may sound like a consumer-friendly proposal, but it will hurt frequent flyers and small business owners, whilst benefiting big retails businesses like Coles and Woolworths.

As a part of a large overhaul of credit card regulations, the RBA plans to limit so-called interchange fees—fees credit card companies charge vendors to process their customers’ payments. This shift in policy follows a European trend  designed to tackle credit card companies’ revenue models, and allow retail chains larger margins.

The fine print of financial regulation is rarely a hot topic for consumers. This allows deals to be made behind closed doors.  But in this case, consumers must take notice. When similar regulations were enacted in Europe, they cost credit card users up to 10 per cent in real income.

The European Union capped interchange fees at 0.3 per cent earlier this year. The big surprise came a few of weeks later when credit card companies started to scrap mileage earning options and other perks connected to their cards. Annual fees for consumers were also heavily increased.

These changes had little impact on credit card companies’ bottom lines. Instead, consumers were left to bear the full cost of the larger margins enjoyed by retailers. What initially sounded like a good idea for consumers ended up screwing over families, small businesses, and the frequent flyers who enjoy the perks that come with airline-issued credit cards.

While redeeming miles might be just a hobby for some, for others it is a vital part of achieving profitability for their small business.

As a Europe-based freelancer, the discounts and mileage earning options my credit cards provide are crucial for keeping costs low, and allowing me to travel where I need to go.  Due to the changes in the law (the same as those proposed by the RBA) small business and families could easily lose 10 per cent of their household income, due to the cancellation of their credit card reward schemes.

For a family, this can mean that they can't go on a holiday. For a small business, it can mean that they must lay off employees, increase prices for their customers, or even declare bankruptcy. For me personally, the new regulations means that I lose several thousand dollars per year in airline miles and higher credit card fees.

Frequent Flyers tend to value each mile (depending on the program) between 4 and 12 cents apiece, and thus realize a 4-12 per cent cashback by using credit cards with mileage earning options. In some cases I have managed to realize cash backs of up to 15 per cent. This helps to sustain my business and keep travel costs extremely low.

The lobbying for this regulation either happens behind closed doors, or under the name of consumer protection. But these changes will harm consumers by leaving them to bear the costs, while big business benefits.

The RBA’s changes will hit Australian frequent flyers, and small business owners hard and without any warning. Families who often book their annual vacation or the visit to see their overseas relatives with points earned on credit cards will also see a decrease in their quality of life.