President Biden vowed in his State of the Union speech to banish bank and credit-card “junk fees”—i.e., charges that progressives don’t like. If Americans see their credit costs increase, access to credit decline, or card rewards disappear, blame the Administration’s new price controls.
The Consumer Financial Protection Bureau (CFPB) last week finalized a rule effectively capping credit-card late fees at $8, which is about 75% less than the typical past-due charge. Director Rohit Chopra calls these “junk fees”—never mind that governments impose hefty penalties for late tax filings, parking tickets and other things. Are those junk too?
Fifteen years ago, Democrats in Congress authorized financial regulators to limit credit-card late fees at a sum that is “reasonable and proportional” to a borrower’s violation. The Federal Reserve in 2010 capped penalties at $25 ($35 for repeat tardy payments), which are adjusted for inflation. The maximum penalty is now $41.
The CFPB’s rule slashes the cap to $8 and eliminates the annual inflation adjustment. Yet as even the CFPB acknowledges, the lower penalty may cause more borrowers to pay late, and as a result incur higher “interest charges, penalty rates, credit reporting, and the loss of a grace period.” This would make it harder to qualify for an auto loan or mortgage.
The agency concedes that credit-card issuers may also raise interest rates, reduce rewards, “increase minimum payment amounts or adjust credit limits to reduce credit risk associated with consumers who make late payments.” Because some states cap credit-card interest rates, “some consumers’ access to credit could fall.” Thanks, Mr. President.
Read more in The Wall Street Journal