On March 5, the Consumer Financial Protection Bureau (CFPB) announced that it would be capping credit card late fees at $8, in hopes to provide financial relief for those consumers who are struggling to make ends meet. While at the surface, some consumers may think this is a great idea, it actually does the complete opposite of its intended purpose.
For starters, this policy is ultimately normalizing being late on your credit card payments. This will pollute consumers’ financial health and stamp them as a higher risk to financial lenders. It’s important to consider that the 82% of credit card users who consistently pay their balances promptly might end up bearing the cost for those who may feel less compelled to make timely payments following this new regulation.
But the stir hasn’t only come from consumers and the media. Immediately following the rule’s announcement, Rep. Patrick McHenry (R-N.C.) expressed his concern by stating that “the Biden Administration continues to utilize financial regulators for political leverage in an election year.” This suggests a perception that the administration’s actions are motivated by a desire to appeal to voters. Rep. McHenry criticized this approach, emphasizing that “the CFPB should focus on its primary role of consumer protection rather than adhering unquestioningly to directives from the President’s political advisors.”
It is essential for credit lenders to have confidence in the creditworthiness of their borrowers. Moreover, lenders require a CFPB that establishes transparent and straightforward regulations, rather than creating ambiguity around the significance of a missed credit card payment. The CFPB’s overreach has not gone unseen and it’s clear that processes must be put in place to hold it accountable for its actions.