A proposal to impose stricter price caps on credit card late fees has been met with opposition from a coalition of free market organizations, including Nevada Policy.

The group, dedicated to promoting pro-consumer, pro-growth policies, has come out against a rule put forward by the Consumer Financial Protection Bureau to impose stricter price caps on credit card late fees.

A stricter cap would harm small businesses and the economy, coalition members stated in a letter to President Joe Biden and Consumer Financial Protection Bureau Director Rohit Chopra.

“Whatever your stance on credit card fees, one thing that is incontrovertible is that government-mandated price caps distort markets,” Nevada Policy President John Tsarpalas said. “And market distortions can significantly affect prices, nearly always to the detriment of the average consumer.”

Key points in the letter include:

• Misrepresentation of Benefits: The letter challenges the claim that the rule would benefit vulnerable Americans. The coalition believes that the stricter price cap will harm small businesses, the broader economy and, ironically, the low-income workers it aims to assist.
• Historical Precedent: Drawing from past regulations, the letter cites the Durbin Amendment to the Dodd-Frank Act as an example. The amendment, which capped interchange fees on debit cards, led to unintended consequences like the elimination of free checking accounts, raised minimum-balance requirements and increased maintenance fees. The coalition warns that the proposed late fee cap could have similar adverse effects on consumers.
• Impact on Smaller Lending Institutions: The letter highlights concerns that smaller lending institutions, especially credit unions, which rely heavily on fees for revenue, might struggle to maintain their operations. This could lead to reduced credit availability and a decrease in the variety of financial products in the market.
• Insufficient Analysis by the CFPB: The SBA’s Office of Advocacy criticized the Consumer Financial Protection Bureau for not adequately considering the rule’s impact on small entities. The letter points out that the CFPB’s certification lacks specific data on various potential impacts, including the effect of reduced fees, changes in card issuances and alterations to risk-analysis processes. The office also noted the CFPB’s admission of lacking data on small depository institutions, raising concerns about the hasty introduction of the new price cap.

Nevada Policy stands with its fellow organizations in urging a reconsideration of the proposed rule change, emphasizing the importance of understanding its broader implications on both businesses and consumers, Tsarpalas said.

In addition to Nevada Policy, coalition members include Americans for Prosperity, Citizens Against Government Waste and Americans for Tax Reform.