Washington insiders insist there is no truth to the rumor that Jimmy Carter lamented his record of economic malaise to Joe Biden right after the 2020 election, to which Biden responded, “hold my beer” -- but it certainly tracks. The Biden Administration’s reckless, left-wing fiscal policies have caused Americans’ daily expenses to skyrocket to a level not seen since Mr. Carter’s days in the White House.
One hedge against a harsh economy that far more Americans have today compared to 40 years ago are credit cards, which make it possible to better manage rising costs and also help consumers build credit and earn valuable cash-back and reward points. Over 84% of Americans currently use credit cards, which are offered by over 5,000 credit card issuers in the United States, providing consumers numerous financial options based on their spending habits and personal preferences. Now the Consumer Financial Protection Bureau (CFPB) is preparing to make the current economic environment even more difficult for consumers by a policy that would limit cardholder’s access to reliable credit, reduce valuable cash back and reward programs, and increase the cost of lending for all Americans.
Under Director Rohit Chopra, the CFPB is attempting to impose a cap on credit card late fees. The CFPB has sold this effort, to the delight of Senator Elizabeth Warren, as an attempt to protect customers against profit-seeking banks while conveniently ignoring the consumer protections that have been in place since 2009 as a result of the CARD Act. The reality is that this is a radical, politically driven proposal that would upend the credit industry and harm consumers.
In February, the American Bankers Association released a statement explaining that the CFPB’s proposed rule would harm consumers and reduce competition.The Credit Union National Association reiterated this sentiment, condemning the proposal and saying it would “reduce access to safe and affordable open-end credit.” They’re right. A government-enforced reduction in late fees, also known as price controls, would completely disrupt the credit industry and leave consumers out to dry.
By capping late fees at $8, the CFPB’s misguided policy would place even more risk on issuers when they give out lines of credit. What’s more, it’s costly for credit card companies to track missed payments and collect on delinquent accounts. Usually, this is evened out by late fees, but with a drastic, government-enforced reduction in these fees, credit issuers would be forced to make cuts and shift cost burdens elsewhere.
Where would the money come from to cover these risks and costs if late fees are cut? The answer is responsible consumers who pay their bills on time. Specifically, American consumers would not only see reduced access to credit and fewer credit card rewards (like cashback, grocery discounts, and other perks important to middle and low income card users), but also higher interest rates, annual fees, and higher barriers to being accepted for a new card in the first place. The government essentially wants to punish consumers who do everything right for the infractions of people who miss payments.
In fact, a majority of Americans agree that late fees serve an important purpose, and are not “junk-fees” as the Biden Administration would have us believe. Late fees are an accepted and necessary part of our credit system that incentivizes consumers to make smart financial decisions. Without reasonable late fees in place, many Americans’ credit scores could drop, hurting their power as consumers in the long run. The government itself recognizes this principle as the IRS certainly charges more than eight dollars in late fees and penalties on tardy tax returns.
The CFPB’s proposed rule is a blatant overreach and an egregious abuse of government power. As usual, average Americans would pay the price for the foolish excesses of big government. Lawmakers must make it clear to the CFPB that this proposed rule is a misuse of its authority that would only serve to hurt consumers who have already suffered enough under this administration.
