How Government Micromanagement Hurts Responsible Credit Card Users

The Consumer Financial Protection Bureau (CFPB) issued a rule that would lower the late fee that could be charged by many credit card issuers, and as a result, the rule would limit access to affordable consumer credit and punish consumers who pay their credit card bills on time. The U.S. Chamber explained last year that 75 percent of credit card users pay their bills on time.

On March 7, 2024, the U.S. Chamber sued the CFPB because the agency exceeded its statutory authority, ignoring our comments and making almost no changes to the rule despite 57,000 other comments. Instead, the CFPB prioritized its agenda of micromanaging businesses and hurting consumers. 

The CFPB rule includes only two changes from the proposal; it arbitrarily exempts smaller credit card issuers (those with fewer than one million accounts, which represents about five percent of all credit cards), and it eliminates a provision that would have capped the late payment at 25 percent of the minimum required payment.

The rule dictates how banks charge consumers who pay credit card bills late and uses more than one flawed “study” to justify their rationale. Here’s what this report got wrong:

• “Data Spotlight” relies on inaccurate methodology: Weeks before the final rule was issued, the CFPB published a “Data Spotlight” which alleges that large banks charge higher credit card rates than small banks. This was presumably an attempt to justify exempting credit card issuers with fewer than one million accounts. But it relies on faulty methodology, including failing to make clear that its population of “small banks” also includes credit unions. The CFPB knows that these two types of institutions are not identical. In fact, some key differences are determined by law, for example:
  

1. The Federal Credit Union Act generally limits interest rates on loans to 15 percent and provides limited discretion to the National Credit Union Administration to establish a temporary higher rate. This rate is currently set at 18 percent.
   
2. The CFPB also fails to acknowledge that credit unions may benefit from a lower cost of funding than banks due to different treatment under the tax code. Credit unions operate as tax-exempt, non-profits with “members” that share a common bond through a community such as an occupation, civic group, school, or religious organization.
   
3. If you remove credit unions from the CFPB’s analysis, the agency’s explanation for why large banks charge higher prices than small banks, the analysis starts to unravel. The Bank Policy Institute has published a helpful report.
   

• Different prices don’t equal anti-competitive behavior: The CFPB’s “Data Spotlight” claims that different credit card rates indicate anti-competitive behavior. But thousands of banks and credit unions, relying on different business models and offering different credit card products with different terms and different prices, is the hallmark of a competitive market.
• Not all banks are the same: Unlike a large national bank, credit unions and community banks are more likely to have multiple relationships with a consumer. They might provide a mortgage auto loan or have information on cash flow in a checking account that provides insight into a borrower’s credit risk that enables them to offer a lower rate. By contrast, large national credit card issuers have the scale and expertise to serve consumers without traditional banking relationships and those new to credit.

Members of Congress are starting to intervene in the flawed rulemaking. Sen. Tim Scott (R-SC), ranking member of the Senate Committee on Banking, Housing, and Urban Affairs, and Rep. Andy Barr (R-KY), chair of the House Financial Services Committee Subcommittee on Financial Institutions and Monetary Policy, have introduced resolutions in the House and Senate to nullify the rule through the Congressional Review Act (CRA). If enacted, the legislation would prohibit the CFPB from implementing any rules that are “substantially the same.” The U.S. Chamber supports congressional action to stop this misguided rule from harming responsible credit card users.

The CFPB should rescind the rule, and Congress should pass the CRA resolution.

About the authors

Bill Hulse

Hulse oversees the day-to-day efforts of CCMC including policy development, advocacy, and communications.

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