Congress Could Overturn a New Rule Limiting Credit Card Late Fees. Good.

Last month's decision by the Consumer Financial Protection Bureau (CFPB) to cap credit card late fees at no more than $8 per month seems destined to earn a spot in the annals of unintended consequences.

On the surface, of course, it sounds great. No one likes getting hit with late fees for missing minimum payments, which previously averaged about $32 per month but vary from credit card to credit card. The CFPB estimates that the change will save American families about $220 per year in lower fees. In his State of the Union address last month, President Joe Biden hailed the change as part of his overall war on "junk fees."

"They don't like it. Credit card companies don't like it," he said.

Some Americans might end up not liking it either—particularly if the result is higher interest rates on credit card purchases or stricter limits on who gets access to credit in the first place. Those are a few of the likely outcomes that Vince Ginn, an economist and former White House associate budget director, identifies in a new post at the Econlib blog.

"While it could save us some money if we slip up and pay late, credit card companies will find ways to compensate for this lost income," he writes. "In trying to shield us from high late fees, the government will set us up for a situation where credit is harder to come by and more expensive."

These mandated changes always come with trade-offs that policymakers fail to see or understand. As I covered in a piece for this month's issue of Reason, the 2010 law that capped debit card swipe fees—in the name of saving consumers and businesses pennies on each transaction—resulted in consumers seeing few benefits and hastened a cultural switch towards credit cards, which usually charge even higher swipe fees to businesses. Now, predictably, there's a similar attempt to limit credit card swipe fees, which will inevitably have its own unintended effects.

As for the CFPB's move to cap late fees, there's the possibility that Congress could get involved. Sen. Tim Scott (R–S.C.), the top Republican on the Senate Banking, Housing, and Urban Affairs Committee, introduced a bill on Monday to overturn the rule using the Congressional Review Act, which allows Congress to have the final say on executive agency actions.

"Now is the wrong time to play political games that limit access to credit," Scott said in a statement. "But that's exactly what the CFPB's rule to limit credit card late penalties will do—it will decrease the availability of credit card products and important financial services, particularly for Americans who need them most."

It's also worth considering the similarities between the CFPB's new rule and the Biden administration's ongoing attempts to forgive student loan debt. While capping late fees on credit cards isn't quite as outrageous—or as likely to provoke perverse incentives—both actions reflect the Biden administration's view that the government should shield people from the potential economic downsides of their own, voluntary decisions.

Despite Biden's attempt to call this a "junk fee," it's really not. The only people who pay credit card late fees are those who make purchases on credit, and then fail to make the minimum monthly payments on their balances.

It's certainly possible to have sympathy for individuals who have missed payments due to economic hardship, but that doesn't change the fact that those fees are a basic part of the contractual obligation that anyone assumes when using a credit card. Late fees are clearly spelled out on every monthly statement. They exist to encourage on-time payment of what is owed—the same reason why the IRS will charge you a penalty for failing to finish your taxes this week (but for some reason the CFPB doesn't seem interested in preventing those fees).

To the extent that capping late fees will translate into higher interest rates for all credit card users—not merely those who are delinquent with minimum payments—then the effect of the CFPB's rule will be to impose marginally higher costs on individuals and families who are using credit cards responsibly to cover the obligations of those who have not done so. That's fundamentally unfair, and none of the government's business.