Policymakers in Washington have launched a misguided political campaign to change how your credit card works, raising costs for consumers and taking away your rewards.
What has Washington proposed?
The White House and CFPB proposed a new rule that would limit credit card late fees to $8 and supposedly save consumers billions. But the math doesn’t add up.
The reality is that this proposal will actually increase the cost of your credit card – even for the 74% of Americans who pay on time.
Senators Durbin and Marshall proposed legislation that would establish an unnecessary and unsafe federally-mandated payment network.
Don’t let the name of this legislation fool you. The Credit Card Competition Act will dramatically hinder the most competitive credit card marketplace in the world, and hardworking families will pay the price while big box retailers reap rewards.
“Fuzzy Math”
In June, Washington Post Fact Checker Glenn Kessler published a column debunking the White House and CFPB’s claims that consumers would save billions.
He found that the claim consumers would save money is “fuzzy” and “not exactly kosher.”
Importantly, Kessler also concludes that “a lower fee might harm some cardholders.” This is because the $8 fee doesn’t cover bank costs to offer the credit cards and therefore, if enacted, banks would have to raise costs elsewhere.
What do American’s think?
A majority of Americans (57%) believe credit card late fees are legitimate, according to a CBA survey released in April 2023. Further, 76% of Americans agree (and 47% strongly agree) that “Paying on time is a personal responsibility I accept when I get a credit card.”
Shockingly, the survey also found that most people fail to understand the consequences if they pay late, which could happen much more frequently if the fee is lowered. Nearly half of Americans (48%) mistakenly believe nothing happens if they pay their credit card bills late.
What will happen if the late fee proposal goes into effect?
Consumer costs go up.
Banks may be forced to drastically alter their business models to mitigate the risk associated with more missed payments. All cardholders, including the 74% who pay on time, could see lower credit lines, tighter standards for new accounts, and increased annual percentage rates (APRs).
The CFPB even concedes in their report that “card holders who never pay late will not benefit from the reduction in fees and could pay more for their account as maintenance fees and other market segments rise in response.”
You may lose rewards.
Banks may also be forced to stop offering credit card rewards programs which benefit consumers at all income levels. The CFPB admits in the NPRM that some consumers “may pay higher maintenance fees or interest or collect fewer rewards…”
What will happen if the credit card routing passes Congress?
You could lose the rewards you love.
If passed, the “Credit Card Competition Act” proposed by Senators Durbin and Marshall would do exactly the opposite of what its name suggests. The proposal would appease big box retailers at the expense of consumers by mandating an unnecessary and unsafe payment routing network. This would take money away from fraud prevention and consumer rewards – diverting revenue to the pocketbook of retailers.
Consumers would have no choice and see a reduction in popular credit card reward programs they demand and value. When Washington, DC did something similar with debit cards, rewards programs went extinct, and the purported savings never trickled down to consumers.