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New credit card late fee rule hurts folks who pay their bills on time


By John Berlau, Competitive Enterprise Institute

There has rightly been an outcry after the Federal Housing Finance Agency (FHFA), which sets policy for the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac, made changes in the mortgage fee structure that will increase costs for borrowers with higher credit scores while lowering costs for those with lower scores. Former FHFA Director Mark Calabria – who recently spoke at CEI on his new book Shelter From the Stormwrites in National Review that this policy is the Biden administration’s “latest attempt to turn our financial system into a political patronage machine.”

This is not the only Biden administration policy in which financially responsible consumers will be punished for their responsibility. Another huge example is the proposed price controls on credit card late fees from the Consumer Financial Protection Bureau (CFPB). The proposed rule would slash maximum penalties within a legal “safe harbor” from current allowable limits of $30 to $41 to just $8, with no annual adjustment for inflation.

As CEI points out in comments filed this month with the CFPB, “The likely effects of this rule will raise costs on the vast majority of consumers who pay their credit card bills on time.” The comments note that the CFPB doesn’t really dispute this, as even its own proposed rule states that “cardholders who never pay late will not benefit from the reduction in late fees and could pay more for their account if maintenance fees in their market segment rise in response – or if interest rates increase in response and these on-time cardholders carry a balance.”

The comments were joined by Todd Zywicki, CEI board member and George Mason University Foundation Professor of Law at Antonin Scalia Law School at George Mason University; Americans for Tax Reform, and the 60 Plus Association. In addition to punishing responsible credit card holders, the comments point to these likely destructive effects of the rule:

The shrinking availability of credit for all consumers will likely be worsened. Strong evidence shows that this rule would harm in particular some of the most vulnerable consumers, including seniors on fixed incomes. We believe this rule could put the numerous regional banks and credit unions that issue credit cards in further peril by snatching away a significant chunk of their revenue streams.

The comments conclude, “Because this rule conflicts with most Americans’ values of freedom and responsibility – as well as potentially the underlying statutes and the U.S. Constitution – the CFPB should live up to its name and protect consumers by withdrawing this rule.”

John Berlau is a senior fellow and Director of Finance Policy at the Competitive Enterprise Institute.