The Biden administration’s proposal to cap credit card late fees has caused concern among some consumers and financial institutions. The Consumer Financial Protection Bureau (CFPB) recently announced plans to limit all credit card late fees to either $8 or 25% of the minimum periodic payment. While this proposal is intended to protect consumers from hidden and unfair fees, some believe it could have unintended consequences.
According to a recent survey released on April 5 by the Consumer Bankers Association (CBA), consumers do not view credit card late fees as hidden or unfair. The survey, which polled over 1,000 Americans, found that only 29% of respondents believe credit card late fees are unfair. Additionally, 70% of respondents said they pay their credit card bills on time and have never incurred a late fee.
The White House’s endorsement of the proposal cited various “junk fees” that it believes are unfair and take money out of the pockets of American families. These fees include ticket service, resort, family seating fees, and others. These fees are often excluded from the initial price of the item and can come as a surprise at checkout.
A new survey found 57% of Americans believe credit card late fees are legitimate and not so-called “junk,” as some have suggested, compared to fees found in other sectors of the economy, which only between 12% to 18% of Americans found to be legitimate. https://t.co/bs6Q8zhakB pic.twitter.com/xNeuO6h9hV
— Consumer Bankers Association (@ConsumerBankers) April 5, 2023
While the CFPB’s proposal to cap credit card late fees may seem like a step in the right direction, some argue that it could have unintended consequences. By punishing on-time creditors with higher interest rates and restricting access to credit, this proposal could ultimately hurt the very people it aims to help.
Furthermore, financial institutions rely on late fees to offset the risk of lending to high-risk borrowers. If credit card late fees are capped, banks and credit card companies may have to adjust their interest rates to make up for lost revenue. This could result in higher interest rates for all consumers, regardless of their creditworthiness.
In conclusion, while the Biden administration’s proposal to cap credit card late fees may be well-intentioned, it is important to consider the potential consequences. The recent survey by the CBA suggests that consumers do not view credit card late fees as hidden or unfair.
Additionally, capping late fees could have unintended consequences for both consumers and financial institutions. As policymakers consider this proposal, it is important to weigh the potential benefits against the potential costs.