Bank of America Bets on Relationship Rewards Amid Regulatory Uncertainty

Bank of America has introduced a new loyalty program, BofA Rewards, that gives its customers the opportunity to earn rewards on their entire relationship with the bank — not just credit card spend.

The program is sure to make waves in the credit card industry as issuers try to figure out what types of rewards they can afford to offer in an uncertain regulatory environment.

President Donald Trump called for a cap of 10% on credit card interest rates in a January post on the social media site Truth Social. The cap would go into effect on Jan. 20.

While that date has come and gone, that doesn’t mean the topic is completely off the table.

Earlier this month, Sen. Bernie Sanders (I-VT) penned an opinion column that kept the discussion over rate caps alive. Only Sanders doesn’t think Trump’s plan to bring down interest rates on cards goes far enough.

“Trump has proposed to cap credit card interest rates at 10%,” Sanders wrote. “That is a good idea. The problem is that his proposal would only last for one year and, in many instances, would end up costing consumers even more than they are paying right now.”

Credit card issuers should seek to understand to what extent a cap on credit card interest rates would hamper their ability to fund card rewards programs.

Sanders went on to say that a 10% cap should last for a minimum of five years. After that period, the senator would like to see a permanent rate cap of no higher than 15% go into effect.

Regardless of whether politicians agree to set a cap on card interest rates at 10%, 15%, or somewhere in between, credit card issuers should prepare for the possibility that a cap will likely cause their interest income to severely decline. 

Credit card companies that rely on interest income to fund rewards programs may be nervous over whether they can offer the same value in perks to cardholders if a rate cap moves ahead. 

But with BofA Rewards, Bank of America has provided a blueprint for how an issuer can restructure rewards programs around a customer’s full relationship with an institution and not simply their credit card activity.

Bank of America customers can enroll in the financial institution’s new rewards initiative beginning on May 27 of this year. People who join the loyalty program, which doesn’t include a fee, must have an active personal checking account with the bank.

In its press release trumpeting BofA Rewards, Bank of America said that 30 million current customers are newly eligible for the program. The program includes four tiers based on a customer’s three-month average balance on qualifying accounts from Bank of America and Merrill. 

Even people with relatively low balances can enjoy perks through BofA Rewards.

“BofA Rewards ensures every client, no matter where they are in their financial journey, can experience meaningful benefits and feel valued for their relationship with us,” Mary Hines Droesch, Head of Consumer and Small Business Products and Analytics at Bank of America, explained in the release.

The program links customers to discounts on auto and home loans as well as rewards bonuses on credit card purchases. With the potential for tens of millions of customers to join the program in late May, Bank of America may aim to cross-sell credit cards to people who have a deposit account with the bank but not a credit card.

In addition to bonuses on credit card purchases, BofA Rewards puts the bank’s customers in position to access discounts on auto and home loans.

Bank of America didn’t exclude premium benefits from the mix when designing its new rewards offering. Customers who qualify for the upper tiers of BofA Rewards can unlock savings from brands such as Audi and Lexus and gain access to curated private events.

With BofA Rewards, Bank of America is expanding the number of customers who can access rewards with the bank. The program is also putting consumers in the driver’s seat by allowing them to earn more exclusive rewards by boosting their account balances.

“Clients want loyalty programs that offer the flexibility to choose benefits that reward their ambitions,” Droesch said. “BofA Rewards delivers differentiated value that evolves with clients’ goals.”

Bank of America’s latest rewards system may bolster the company’s efforts to retain more customers and attract people who are looking for a new primary bank. Relationship rewards are likely to appeal to consumers who are not only credit card users but keep significant balances in their bank accounts.

We may see more banks offer similar types of programs should a cap on credit card interest rates gain traction among legislators in the near future. In that event, full-service banks may be in a better position to thrive than card issuers that don’t accept deposits or offer other banking products.