Rep. McHenry Decries Biden’s Credit Card Late Fee Plan

A leading House Republican says President Biden’s proposed credit card fee cap will hurt consumers.

Announced by the Consumer Financial Protection Bureau (CFPB) Wednesday (Feb. 1), the proposed cap on late fees would lower the typical late fee from around $30 to $8. The CFPB says this would save consumers up to $9 billion per year.

But Rep. Patrick McHenry, chair of the House Financial Services Committee, argues that the rule would raise costs for card users.

“This proposal would also limit loyalty benefits for consumers, while forcing borrowers in good standing to foot the bill for those who may be late on their payments,” McHenry said in a statement issued Thursday (Feb. 2).

He argued that the CFPB “is attacking the same tool—fees—that the IRS uses to deter late tax payments” and accused the agency of “coordinating this announcement with the White House for political purposes.”

The CFPB’s proposal came as the White House called on Congress to crack down on what it called excessive fees for things like online concert and sporting event tickets, as well as a ban on the fees airlines charge family members to sit with young children.

As PYMNTS wrote Wednesday, the Biden administration’s targeting of credit card late fees may lead to unintended consequences.

“Among those consequences: Stifling consumers’ embrace of banks’ innovations designed to avoid late payments in the first place,” PYMNTS wrote. “Those innovations include digital reminders and grace periods that are designed to keep payments timely.”

While placing a cap on those fees would immediately reduce the penalties paid by a subset of banks’ customers, the ripple effects could be considerable. According to estimates by the Federal Reserve, late fees and other fees make up about 16% of profitability.

“Profits, of course, drive the innovations that benefit the financial services ecosystem as a whole,” PYMNTS wrote.

Among those innovations are ways to keep consumers on the path to better financial health, avoiding late payments in the first place and ultimately improving their credit. Most credit card companies provide customers with grace periods for late payments.

“And the great digital shift has given rise to digital channels whereby issuers remind consumers — weeks in advance — when a payment is due,” PYMNTS wrote. “The confusion and clutter of the traditional paper statement and the mistiming of paying with checks is rapidly falling by the wayside.”