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GINN: How Biden’s War on ‘Junk Fees’ Hurts Americans

What the Biden administration wants is Credit card late fee limit Through the Consumer Financial Protection Bureau (CFPB). But wait a minute. This can cause problems, especially for the person the rule is trying to help.

C.F.P.B. Proposed rule to cap late payment fees for credit cards This may reflect well-intentioned efforts to strengthen consumer protection, and suggests that low-income households may be hit the hardest. But stakeholders, including the American Bankers Association, caution against doing so for a number of reasons. unintended consequences. These include restricting access to credit for people in need, creating perverse incentives to not pay on time, and lowering the costs of banking and credit by passing these costs on to everyone. Includes lifting.

Late fees may be a nuisance, but they’re critical to keeping the credit card system in check and providing credit to those who need it.by Upper limit on late fees The CFPB’s cap of $8 and 25% of minimum payments risks upsetting the delicate balance of the financial ecosystem.

Whether we like it or not, credit cards serve as a lifeline for millions of Americans, providing convenience, security, and a way to build credit.

In fact, for families living paycheck to paycheck, every dollar counts. However, it is essential to point out that late fees are not just a punitive measure. Late fee It helps encourage people to pay on time, reduce defaults, and provide them with access to the credit they need.

However, if a cap is placed on late fees, it will not only be the big banks that will suffer, but also ordinary people and small and medium-sized businesses. Banks are likely to raise fees and tighten lending standards to compensate for the drop in revenue. This means increased costs and less access to credit for everyone.

Economist Dan Mitchell Analysis highlights Well-intentioned regulations can have unintended consequences, urging policymakers to tread carefully. Late fee It contributes significantly to card issuers’ bottom lines, but it also impacts consumers. payment pattern and debt management strategy.

Imposing such price controls on the market not free. PPeople in the market are the best at pricing things like credit card late fees. Government-imposed restrictions, such as caps on late fees, distort market signals and impede economic efficiency.

The American Economic Liberties Project, an antitrust advocacy group, emphasize the need Cap, if not eliminate, these late fees. While it is true that late fees can exacerbate the economic hardship of vulnerable communities, blanket regulations do not achieve their intended goals.

The policy could be particularly damaging in Texas, where local banks are the backbone of many communities, as in many other states. If banks can’t use late fees to encourage on-time payments, businesses may struggle to get the credit they need to grow and prosper.

In fact, Glenn Hammer president of the Texas Business Association recently highlighted the symbiotic relationship between late fees and small depository institutions. Many local banks rely on late fees to cover operating costs and extend credit to consumers. Imposing strict limits on late fees could jeopardize the survival of these institutions and limit access to credit to underserved communities.

Small Business Regulatory Enforcement Fairness Act (SBREFA) underscore The importance of assessing the impact of regulatory proposals on small businesses. Late fees are the lifeblood of small depository institutions, allowing them to compete in the credit card market. When changing regulations, the impact on these needs to be carefully considered. business and the communities they serve.

economist milton friedman warned: “Many people want government to protect consumers. The more pressing issue is protecting consumers from government.”

Before the CFPB gets into this, let’s pump the brakes. Because one size doesn’t fit all when it comes to credit card late fees, or “junk fees” in general.

Dr. Vance Zinnis president of Ginn Economic Consulting, host of the Let People Prosper Show, and previously served as deputy director for economic policy in the White House Office of Management and Budget from 2019 to 2020. Follow him on X.com. @VanceGinn.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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