'Serious squeeze' coming to the credit market?

'Serious squeeze' coming to the credit market?

'Serious squeeze' coming to the credit market?

Advocates of accountability and limited government say an independent federal agency's plan to cap credit card late fees at $8 will do more harm than good.

The Consumer Financial Protection Bureau (CFPB), which began during the Obama administration and is authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act, operates independently -- something that center-right individuals, legislators, and special interest groups have objected to over the years.


In a press release published on the agency's website, CFPB Director Rohit Chopra claims the proposal seeks to help consumers.

"For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers," he states. "Today's rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines."

But John Berlau of the Competitive Enterprise Institute has concerns.

"If not stopped, the CFPB regulation will have negative consequences for middle-class and lower-income consumers, as well as smaller banks and credit unions that issue credit cards," he asserts.

David Williams of the Taxpayers Protection Alliance Foundation (TPAF) says people will now be cut off from credit because credit card companies are not going to take as much of a risk with new people.

Williams, David (Taxpayers Protection Alliance) Williams

"This is bad for consumers, it's bad for the economy, and quite frankly, the Consumer Financial Protection Bureau is a mess," says Williams. "They are not accountable to Congress, and they issue these rules and regulations without any oversight."

"It may seem good on the surface to cap fees at $8, but businesses will change their behavior," he continues. "They could make it more expensive to just get a credit card, to receive a credit card, and they may tighten restrictions on who is available to receive a credit card."

In other words, it will likely be more difficult for consumers to build credit with a new credit card, because late fees help pay for the other operations of a credit card company.

"I think we're going to see a serious squeeze in the credit market if this rule goes through," the TPAF spokesman warns.

Williams also predicts this proposal will be mentioned in tonight's State of the Union speech, and he expects people will look at it superficially and assume it will save them money.

"The problem is they're not looking at the long-term effects of rules like this," he submits. "Quite frankly, the government should not be dictating what private industry does or does not do. Banks are not doing anything illegal by charging late fees, so, the government needs to stay out of this."

He adds that the more permission the government is given to regulate the private market, the more they are going to do it, and the more it is going to hurt consumers.