CFPB Cap on Credit Card Late Fees = Price Controls that Raise Cost of Credit for Everyone

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The Biden White House is touting a new proposed rule from the Consumer Financial Protection Bureau that would cap most credit card late fees at $8 with no automatic adjustment for inflation. CEI Senior Fellow and Director of Finance Policy John Berlau explains why this rule would harm consumers in the name of helping them:

“A hard price control of $8 is bad economics anytime but is especially harmful during times of raging inflation. The proposed CFPB rule would have a range of negative economic consequences particularly for middle-class and lower-income consumers, as well as smaller banks and credit unions that issue credit cards.

“The proposed restrictions on the ability to charge late fees on credit cards will simply translate into higher charges for consumers who make their payments on time. The CFPB is proposing price controls that will raise the overall cost of credit for everyone. 

“By disincentivizing credit providers who take risks that they may not be paid back, these proposed price controls would also greatly reduce the availability of credit, particularly for lower-income consumers. And all consumers would likely see a cutback in benefits such as credit card rewards that middle-class families and retirees utilize to make travel and other purchases more affordable. This measure could also lead to a more concentrated credit card market, as smaller banks and credit unions may pull out of the market due to the higher costs of issuing credit cards. The CFPB should cancel this flawed rule, and if it does not, Congress should overturn it to free consumers and Main Street financial institutions from another piece of harmful red tape.”