Director Rohit Chopra and his Consumer Financial Protection Bureau (CFPB) elevated politics over economics to give President Biden two applause lines in his State of the Union address this month as he took a victory lap for allegedly saving consumers $20 billion annually in credit card fees.
In an obviously coordinated effort with the White House against what the president has popularly labeled “junk fees,” the CFPB reduced the allowable cap on credit card late payment fees from $32 to $8. But don’t get fooled into thinking that you will save $24 each time you pay your credit card bill late, or that it is now easier to skip a payment altogether.
An opinion we co-authored last year explained — apparently unsuccessfully — how such economic virtue signaling ends up hurting the people who need credit the most. The analysis is simple: If government rules arbitrarily prevent lenders from recouping the cost of making credit available to poor credit risks — i.e., borrowers who don’t pay on time — they won’t make the loan and there will be no late fees to worry about.
That makes the White House’s and CFPB’s claim of saving 45 million Americans an average of $220 annually largely illusory. Lawsuits filed against the CFPB by industry representatives before the president’s address will no doubt explain that, notwithstanding political slogans, there is no free lunch.
There is, however, an equally significant issue embedded in this action by the CFPB. As more and more economic issues are politicized, it becomes increasingly dangerous to have large amounts of power in the hands of regulators who may succumb to the temptation to become political vigilantes.
Read more in The Hill