BankBeat, a digital publication whose audience is mainly banks and other credit card issuer, on 3/14/24 reports, in an article by BankBeat’s digital managing editor, Sam Wilmes, that the Consumer Financial Protection Bureau’s (“CFPB”) newly adopted rule forbidding credit card late fees of more than $8 “Ignores Reality”
The Consumer Financial Protection Bureau’s recent capping of credit card late fees at $8 continues the bureau’s erroneous view of the expense as an unnecessary “junk fee.” The rule also ignores two foreseeable unintended consequences: A rise in instantly declined transactions and reduced customer access to credit lines and credit card reward programs.
Finalized March 5, the rule reduces the typical credit card late fee 75 percent from the usual $32 for credit card issuers with more than 1 million open accounts. The CFPB claims limiting late fees will save American families more than $14 billion annually.
Alluding to the rule last week during his State of the Union address, President Joe Biden claimed that banks and credit card companies disapproved because he was saving Americans billions of dollars per year by eliminating or reducing “junk fees” such as the credit card late fee.
The problem with Biden’s argument is that a credit card late fee is not a “junk fee.” The late fee is instead a necessary expense banks utilize to prevent late payments. Other sectors — including the federal government — also charge late fees to those who don’t pay on time. Why should banks and credit card companies be held to a different standard?
Limiting late fees could require banks and credit card companies to change how they respond to late payers by reducing their lines of credit, raising their interest rates and strengthening credit reporting requirements. This could lead consumers who subsequently struggle to secure loans or mortgages from banks to move their business to payday lenders or fintechs.