A rule released today by the Biden Administration and federal regulators at the Consumer Financial Protection Bureau (CFPB), to cap credit card late fees at $8 is of great concern to the Consumer Choice Center (CCC). Any intention to improve the consumer experience through well-informed and economically sound regulation is commendable, but this new rule is anything but.
“The CFPB argues that the 55 million consumers who are charged late fees on credit cards each year stand to now save up to $220 per year. This talking point from the administration completely ignores how consumers will be more incentivized to spend beyond their means and increase their overall debt levels,” said Dr. Kimberlee Josephson, Professor of Business at Lebanon Valley College and a Research Fellow with the Consumer Choice Center.
Unintended consequences will follow this new Biden Administration rule, such as higher credit card interest rates, less availability of credit, and higher annual fees. By specifically targeting large credit card issuers with more than 1 million accounts, where roughly 95% of the total outstanding credit card debt is held, the regulation will inadvertently harm the very consumers it claims to protect.
As Dr. Kimberlee Josephson wrote at FEE.org [Foundation for Economic Education], similar financial regulations on fees in recent history resulted in, “90 percent of banks raising their costs for consumers and restricting rewards programs for patrons, to make up for the loss incurred by the interchange fee caps. Consumers who previously enjoyed accruing points or getting cashback on their purchases were now unable to do so. Many banks did away with free checking accounts, which hurt lower-income households the most.”
As advocates for consumer choice and market-driven solutions, the Consumer Choice Center supports a balanced regulatory approach that takes both economic reality and consumers’ financial well-being into account. Consumers deserve a competitive credit market with clear and transparent terms, as well as broad availability of credit with dynamic rewards programs and fair interest rates.
“The more the government meddles in the financial sector, the less market-driven the system becomes for consumers. This may be good short-term politics for President Biden, but sound economics don’t change, and consumers will pay more in the long run,” concluded Dr. Josephson.
