WASHINGTON (Legal Newsline) - Following a hearing in which Republicans criticized what they feel is overreach by a federal agency, a House committee last week voted to repeal limits credit card companies can charge for late fees.
The Consumer Financial Protection Bureau drew considerable attention when it imposed an $8 cap on late fees, with Rep. Andy Barr, a Kentucky Republican and chair of the Financial Services Committee, calling the agency "rogue."
The cap has already been challenged in court by groups like the U.S. Chamber of Commerce. It is not likely President Joe Biden would sign any legislation striking down the cap imposed by his pick to head the CFPB, Rohit Chopra.
“In deciding to finalize the credit card late fee rule nearby President Biden’s State of the Union address, the CFPB is showing how politics, not consumer protection, drives the train under Director Chopra," Barr said at a March 7 hearing.
“Commenters on the proposal should be appalled that their thoughtful critiques were conveniently tossed aside in favor of political considerations in an election year."
Previous Legal Newsline coverage detailed the difficulties lenders are facing from the CFPB's new crackdown on loans that pose "risk" to borrowers, with the president of a trade group explaining that the CFPB hasn't actually defined "risk" in a way that will help companies be in compliance.
The CFPB is funded by the Federal Reserve, supposedly for the purpose of avoiding political battles in Congress over how much money it should receive. The U.S. Supreme Court is currently mulling whether that framework is constitutional.
Nicholas Anthony, a policy analyst at the Cato Institute, testified at the hearing that the late fee rule showed a misunderstanding of the marketplace, considering late fees fell 68% in recent years.
"In fact, even the CFPB has recognized this trend," he said, citing a CFPB report that found late fees revenue dropped $1.5 billion from the fourth quarter of 2019 to the fourth quarter of 2023.
The Federal Reserve found competition among banks has forced them to charge lower late fees in order to attract and keep customers.
"So long as fraud is not occurring, and people can freely opt into and out of these services, the government should stay out of the equation," Anthony said, " especially since price controls hurt the very people they are intended to help and create needless government intrusion into business."
The House Financial Services Committee voted 28-22 April 17 to advance the legislation, in a strictly partisan vote. Sen. Tim Scott, R-SC, has introduced legislation to repeal the late fee rule in the Senate with 13 Republican co-sponsors.
"The concept of attaching consequences to the failure to pay an obligation is ubiquitous in our legal system," the U.S. Chamber's lawsuit says.
"Credit card obligations are no different: Congress has recognized that credit card late fees appropriately serve three commonsense, important purposes: deterring late payments, accounting for cardholder conduct, and compensating credit card issuers for the costs they incur when payments are late."
In addition to the U.S. Chamber, other plaintiffs are the Fort Worth Chamber of Commerce, the Longview Chamber of Commerce, the American Bankers Association, the Consumer Bankers Association, and the Texas Association of Business.
The American Consumer Institute announced its support for a repeal, saying the late fees cap inadvertently harms consumers.
"History has shown us that price controls only lead to shortages, and the CFPB’s $8 cap on late fees is no different," the ACI said.
"These late fees exist for a reason, and capping them will only force banks to limit credit to consumers who need it or make up the money in other ways, like charging higher rates."