Commentary: New CFPB regulations benefit Biden, not consumers
As Americans grapple with serious issues like inflation and whether they can afford food, gas or their mortgages, the Biden administration is hoping to distract voters with Picayune concerns. In one last post on X, the president made the price of concert tickets the target of his anger and at the same time promised to “take action against junk fees.” It’s an empty promise that sounds much better than it will prove in practice.
Consider the example of the Consumer Financial Protection Bureau’s ongoing efforts to limit credit card late fees to $8 in most cases. Since no one likes paying late fees, the government believes this issue is an easy political victory that it desperately needs as economic headwinds question the wisdom of adopting the “Bidenomics” branding.
But as annoying as they are, fees play an important role. People respond to incentives. Late payment interest is an incentive that lenders understandably use and agree to with borrowers as part of the terms of service to encourage on-time payment. As House Financial Services Committee Chairman Patrick McHenry (R-N.C.) notes, it is interesting to see the government attacking “the same tool — fees — that the IRS uses to deter late tax payments.” And late credit card payment fees don’t come close to the burden of IRS penalties.
Without the incentives provided by late payment interest, lenders’ collection and other costs will increase. These costs are likely to be borne by the vast majority of borrowers, who are responsible and do not pay late fees through higher interest rates and lower benefits.
Riskier borrowers will also suffer. Given the limited ability to encourage timely repayment, lenders are likely to tighten their lending standards. Even the CFPB acknowledged this reality in its proposed rule, acknowledging that “some consumers’ access to credit could be limited.”
McHenry makes another good point when he says, “It is disturbing that this supposedly independent agency [CFPB] is coordinating this announcement with the White House for political reasons.” CFPB regulators claim to be working in the interests of consumers, but it appears that benefiting politicians has a higher priority.
The CFPB’s proposed cap on late fees is completely arbitrary. There is no good reason other than political whim to intervene even further beyond existing government boundaries to micro-manage the structure of credit card payments. But thanks to the organization’s structural isolation from democratic accountability, arbitrary mandates are the order of the day.
Fortunately, the Supreme Court is considering putting an end to this problem. Oral arguments were recently held in a case challenging the agency’s funding structure, which unconstitutionally circumvents congressional oversight.
But the CFPB doesn’t have to wait until it’s forced to correct course. Even before the Supreme Court rules and, one hopes, reins in the bureaucrats who currently operate free of democratic accountability, it can repeal these and other arbitrary rules and begin acting responsibly.
Daniel J. Mitchell is an economist and president of the Center for Freedom and Prosperity.
