Business, Banking Groups Slam Biden Administration for Targeting Credit Card Industry

This illustration picture shows debit and credit cards arranged on a desk in Arlington, Va., on April 6, 2020. (Olivier Douliery/AFP via Getty Images)

The Biden administration’s proposed actions against late fees in the credit card industry is facing strong opposition from business groups, which warn that the measure will have negative impacts on consumers.

On Tuesday, President Joe Biden announced the launch of a strike force to crack down on “unfair and illegal pricing” of goods and services. The Consumer Financial Protection Bureau (CFPB) has finalized a rule to slash credit card late fees from the current average of $32 down to $8. The Federal Communications Commission (FCC) has proposed a rule to ban “bulk billing” arrangements, a practice in which landlords or providers charge everyone living or working in a building for internet, cable, or satellite services even if they don’t want it or haven’t opted in.

The Biden administration also will go after “junk fees” in the form of internet and cable fees, apartment rentals, banking fees, auto dealer fees, live event tickets, and more. The government claims that consumers pay $90 billion in junk fees annually.

These proposals have come under intense criticism from multiple banking organizations and the U.S. Chamber of Commerce. In a March 5 press release, Rob Nichols, the president of American Bankers Association (ABA), called the rule on credit card late fees proposed by the CFPB a “flawed” one that will “reduce competition and increase the cost of credit.”

In addition, the rule will result in “more late payments, higher debt, lower credit scores, and reduced credit access for those who need it most.”

“The bureau’s misguided decision to cap credit card late fees at a level far below banks’ actual costs will force card issuers to reduce credit lines, tighten standards for new accounts, and raise APRs [annual percentage rates] for all consumers—even those who pay on time.”

The ABA blamed the CFPB for using “misleading” blog posts and “irresponsible” press statements to present an inaccurate and distorted view of the credit card market. The CFPB mischaracterized “the important role late fees play in promoting responsible consumer behavior.”

The group pointed out that the final rule has remained essentially unchanged from its proposal despite receiving counter comments from stakeholders, which it says is “unusual.” The ABA accused the CFPB of having made its mind right from the beginning, which is the “very definition of an arbitrary agency action.” This rule “should not be allowed to go into effect,” the ABA stated.

Credit Card Industry Impact

Lindsey Johnson, president of the Consumer Bankers Association (CBA), pointed out that the CFPB’s proposal endangers long term financial health of consumers.

“This final rule will benefit a small minority of frequent late-payers by offsetting the costs of their late payments by increasing costs amongst the 74 percent of cardholders that pay their bills on time,” she stated. “The CFPB has openly conceded that the majority of cardholders will likely see their credit card interest rates increase and credit availability decrease.”

“This will be particularly impactful for the nearly 50 percent of subprime card consumers who work hard and budget to successfully pay their bills on time—and will now have a harder time obtaining credit, managing their debt, and growing their credit histories.”

While the Biden administration is projecting the rule as a “win” for consumers during an election year, it is “anything but” a win.

CFPB Director Rohit Chopra justified the late fee proposal, accusing credit card companies of harvesting billions of dollars in junk fees from Americans for more than a decade.

“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 line,” he stated.

By reducing the typical late fees from $32 to $8, more than 45 million Americans who are charged such fees will save an average of $220 annually, the CFPB stated.

Targeting Meat Industry

President Biden’s strike force has targeted the meat industry. The Department of Agriculture (USDA) has finalized a rule to crack down on processing companies deemed to engage in deceptive contracts with farmers and ranchers producing meat and poultry.

The rule will ban retaliatory practices employed by processing firms that prevent small farmers from raising concerns or coming together in associations. It aims to protect “certain producers from discrimination.”

Neil Bradley, the executive vice president of the Chamber of Commerce, slammed the USDA proposal.

The administration’s strike force “is an attempt to return to the failed policy of government price controls which President [Richard] Nixon tried 50 years ago—literally declaring that the government would set the price of meat,” he said.

“The result was predictable: shortages leading to empty shelves and long lines and a decade of high inflation and economic stagnation. This effort by the Biden administration to use regulatory agencies to micromanage how private businesses set prices will have the same result: shortages, fewer choices for consumers, a weaker economy, and less jobs.”

The strike force will be led by the FTC and the Department of Justice, which Mr. Bradley says have been “openly hostile to market efficiencies” for the past three years.

The chamber said it will be pushing back against these “harmful and counterproductive policies,” including the credit card late fee proposal.