The key to stage magic is distraction. You do something showy with one hand to distract the audience from what you’re doing with the other. On a small scale, it’s sleight of hand tricks at a kid’s birthday party. On a large scale, it’s David Copperfield making the Statue of Liberty disappear.
On a much, much larger scale, it’s Joe Biden using credit card fees to distract people from how he’s ruined the economy.
The Consumer Financial Protection Bureau (CFPB) has announced a new rule that caps credit card late fees. The rogue agency, excuse me “consumer watchdog,” finalized a rule last Tuesday to force credit card companies to limit late fees to $8, much lower than the average late fee of $32. The rule will save more than $10 billion in late fees each year, or an average of $200 per person, according to CFPB estimates.
This new rule came as part of the Biden Administration’s efforts to crack down on “junk fees,” which the president announced as part of a “strike force” to crack down on “price-gouging.” (I have to use so many quotation marks these days.) CFPB Director Rohit Chopra said that government mandates on late fees would help people get “a fair shake wherever they go.”
After three years of running the American economy into the ground, the Biden Administration needed something to distract voters with before his (hopefully last) State of the Union last Thursday. So-called junk fees attached to credit cards is something no one likes to have to pay, and that’s an issue that affects a huge cross-section of Americans.
Card debt is at an all-time high of more than $1 trillion!
Now what the Biden Administration won’t say is how culpable they are for so much of this outrageous debt, having successfully sabotaged Americans’ ability to pay for housing, food, gas, and other basic necessities as inflation eats away their savings.
Creating a problem, then rushing in with a solution, is a very old magic trick.
To anyone paying attention though, it’s obvious the rule was rolled out to help Biden’s re-election, not to help consumers. It’s cheap pandering, not serious policymaking.
But the groups who are paying attention are those who will be hurt by the CFPB’s illegal price controls. Those who’ve filed lawsuits against the administration include the U.S. Chamber of Commerce, Fort Worth Chamber of Commerce, Longview Chamber of Commerce, Consumer Bankers Association (CBA), American Bankers Association (ABA), and Texas Association of Business.
The administration’s proposal will doubtless get struck down in court, but it’s not a serious proposal, it’s an election-year distraction. Even were the CFPB’s junk rule against junk fees enacted, it wouldn’t help consumers, because – in the long run – it would have cut access to credit and made interest rates higher for everyone.
Lowering the penalty will cause even more late payments because it disincentivizes people to pay on time – hurting the people this is supposed to be helping. If there’s no opportunity cost for not paying a debt back on time, people won’t do it. So to cover this, credit card companies will have to raise interest rates up for everyone as a consequence, which penalizes everyone including those who pay on time.
Then companies will have to stop extending this service to people – then those who need credit won’t be able to get it at all. Demonizing creditors goes back to virtually every ancient philosophical and religious system, but modern financial systems are the reason civilization exists, and credit card companies are hardly Shylock from Merchant of Venice.
The CFPB itself has no business getting involved in this. Born out of the financial crisis, the CFPB has a 15-year history of unconstitutional and unethical behavior, not just according to conservative pundits like myself but federal judges. It throws money away on unnecessary facilities expenses, has discriminated against black and Hispanic employees, and enabled bad employees to steal the data of (at least) 250,000 people.
The CFPB was designed to hold banks and others accountable, but the rogue agency is itself accountable to no one.
One hopes that the business groups who are pushing back on this will remember how much better the regulatory environment was when Republicans were in charge. Conservatives have been shocked by the way big business has carried water for the woke agenda – the discriminatory practices of DEI, the climate cult, fatuous nonsense about “stakeholder capitalism” – but not by the consequences.
Get woke, go broke isn’t an iron rule of business, but industry shouldn’t cave to people who want to make our liberties disappear. It’s not magic.