Congress Could Overturn a New Rule Limiting Credit Card Late Fees. Good.
Last month’s decision by the Consumer Financial Protection Bureau (CFPB) to cap credit card late fees at no more than $8 per month seems destined to earn a spot in the annals of unintended consequences.
On the surface, of course, it sounds great. No one likes getting hit with late fees for missing minimum payments, which previously averaged about $32 per month but vary from credit card to credit card. The CFPB estimates that the change will save American families about $220 per year in lower fees. In his State of the Union address last month, President Joe Biden hailed the change as part of his overall war on “junk fees.”
“They don’t like it. Credit card companies don’t like it,” he said.
Some Americans might end up not liking it either—particularly if the result is higher interest rates on credit card purchases or stricter limits on who gets access to credit in the first place. Those are a few of the likely outcomes that Vince Ginn, an economist and former White House associate budget director, identifies in a new post at the Econlib blog.
“While it could save us some money if we slip up and pay late, credit card companies will find ways to compensate for this lost income,” he writes. “In trying to shield us from high late fees, the government will set us up for a situation where credit is harder to come by and more expensive.”
These mandated changes always come with trade-offs that policymakers fail to see or understand. As I covered in a piece for this month’s issue of Reason, the 2010 law that capped debit card swipe fees—in the name of saving consumers and businesses pennies on each transaction—resulted in consumers seeing few benefits and hastened a cultural switch towards credit cards, which usually charge even higher swipe fees to businesses. Now, predictably, there’s a similar attempt to limit credit card swipe fees, which will inevitably have its own unintended effects.
As for the CFPB’s move to cap late fees, there’s the possibility that Congress could get involved. Sen. Tim Scott (R–S.C.), the top Republican on the Senate Banking, Housing, and Urban Affairs Comm
Article from Latest
The Reason Magazine website is a go-to destination for libertarians seeking cogent analysis, investigative reporting, and thought-provoking commentary. Championing the principles of individual freedom, limited government, and free markets, the site offers a diverse range of articles, videos, and podcasts that challenge conventional wisdom and advocate for libertarian solutions. Whether you’re interested in politics, culture, or technology, Reason provides a unique lens that prioritizes liberty and rational discourse. It’s an essential resource for those who value critical thinking and nuanced debate in the pursuit of a freer society.