Biden Administration Cuts Credit Card Fees

[o_mlly]

How many people got a tax cut under Trump?

Everyone who pays taxes. In fairness, those who pay the most benefitted the most.

 

[iluvatar5150]

Everyone who pays taxes.

No, but close enough. The number of tax payers > the number of student loan holders.


FWIW: Instituting the SALT cap + eliminating the personal exemption + eliminating the home office deduction was an unwelcome combo for those of us who WFH and own a house.

 

[Larniavc]

Regs that benefit narrowly but distribute the pain widely is the Dems' usual game.

If it's so narrow how is it a vote winner? Think about what you write.

 

[BCP1928]

Wrong again, my friend. The aggregate number of credit card customers in the short-term is largely fixed. And the banks know that. The hope that lowering profits now will increase a bank's customer base later is a rather bad strategy. Lowering profit now lowers stock prices. Dividends will be lowered or won't be paid at all, and stockholders (the widow living on her portfolios dividend payout) will suffer.

The banks do not have to act in synch; that would be illegal. One bank will likely make the necessary moves to maintain profits and the rest will watch, but not for long, and then do the same.

Yes, I see where you are coming from now. I was thinking in abstract free market terms; I forgot I was talking to a conservative.

 

[o_mlly]

No, but close enough. The number of tax payers > the number of student loan holders.

Nope. That was exactly correct. That the number of taxpayers > the number of student loan holders getting relief does not make my answer incorrect.

If it's so narrow how is it a vote winner? Think about what you write.

In our 50/50 polarized voter population, "narrow" could make one become the winner.

Yes, I see where you are coming from now. I was thinking in abstract free market terms; I forgot I was talking to a conservative.

I am a "realist" with advanced degrees in economics who has managed multi-million-dollar businesses. I knew right away that you have not. Hope I helped.

 

[BCP1928]

Nope. That was exactly correct. That the number of taxpayers > the number of student loan holders getting relief does not make my answer incorrect.

In our 50/50 polarized voter population, "narrow" could make one become the winner.

I am a "realist" with advanced degrees in economics who has managed multi-million-dollar businesses. I knew right away that you have not. Hope I helped.

Yes, your reply was very informative. You didn't happen to study at the University of Chicago, by any chance?

 

[probinson]

Nope. It will make those who pay on time pay more.

This is not a guarantee, but it's absolutely plausible.

So the government regulates the late fee and only allows the bank to charge $8. This reduces the revenue to the bank from those who pay late by approximately $24/month. So what's to stop banks from increasing interest rates? Even a 0.25%-0.5% increase could easily make up for lost revenue through increased interest, which would indeed affect those who pay on-time.

I've learned through my career that many people are just not that good at problem solving. Most people are content to "do something", not really caring if that "something" successfully addresses the problem. Few people actually consider the results of their actions, and if what they're "doing" is actually beneficial. So as long as they have done "something" that on the surface appears beneficial, most people are happy. Politicians know this and exploit it on a regular basis.

That's what this is. Again, I don't disagree with the decision to reduce late fees. But does it benefit the people who need it? Emphatically, NO.

To reap any "benefit" from a reduction in late fees, you must continue to pay late, meaning that you are falling further behind. It does not provide any real relief.

 

[o_mlly]

This is not a guarantee, but it's absolutely plausible.

So the government regulates the late fee and only allows the bank to charge $8. This reduces the revenue to the bank from those who pay late by approximately $24/month. So what's to stop banks from increasing interest rates? Even a 0.25%-0.5% increase could easily make up for lost revenue through increased interest, which would indeed affect those who pay on-time.

I've learned through my career that many people are just not that good at problem solving. Most people are content to "do something", not really caring if that "something" successfully addresses the problem. Few people actually consider the results of their actions, and if what they're "doing" is actually beneficial. So as long as they have done "something" that on the surface appears beneficial, most people are happy. Politicians know this and exploit it on a regular basis.

That's what this is. Again, I don't disagree with the decision to reduce late fees. But does it benefit the people who need it? Emphatically, NO.

To reap any "benefit" from a reduction in late fees, you must continue to pay late, meaning that you are falling further behind. It does not provide any real relief.

Nothing is certain; merely probable. The ABA press release affirms my prediction that those who pay on time will pay more:

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 for all consumers – even those who pay on time. CFPB Final Credit Card Late Fee Rule | American Bankers Association​

 

[Hans Blaster]

Nothing is certain; merely probable. The ABA press release affirms my prediction that those who pay on time will pay more:

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 for all consumers – even those who pay on time. CFPB Final Credit Card Late Fee Rule | American Bankers Association​

Translation, we couldn't reap enough megaprofits from fees, so no we're going to squeeze blood from the stone with higher rates.

 

[probinson]

Nothing is certain; merely probable. The ABA press release affirms my prediction that those who pay on time will pay more:

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 for all consumers – even those who pay on time. CFPB Final Credit Card Late Fee Rule | American Bankers Association​

Thanks for the link.

For anyone who doesn't want to click the link, here is the entire statement:

“Today’s flawed final rule will not only reduce competition and increase the cost of credit, but will also 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 for all consumers – even those who pay on time. It comes as the CFPB continues to use misleading blog posts and irresponsible press statements to paint an inaccurate and distorted picture of today’s highly competitive credit card market, which offers consumers a wide variety of card programs and features they value – provided by banks of all sizes across the country. Just days before the State of the Union, this supposedly independent agency is clearly choosing to put politics over sound public policy.​

​

“In creating today’s final rule, the CFPB relied on flawed assumptions and a mischaracterization of the important role late fees play in promoting responsible consumer behavior. Not surprisingly, the Bureau disregarded industry data about the true cost of late payments. It is highly unusual for a final rule to remain essentially unchanged from its proposal despite detailed stakeholder comments offering reasonable alternatives. This final rule makes clear that the CFPB’s mind was made up from the beginning – the very definition of an arbitrary agency action. We will closely review this final rule and consider all options to fight the harmful consumer policy coming out of Director Chopra’s CFPB. This rule should not be allowed to go into effect.”​

Huh. Unintended consequences. Whodathunkit?

I don't want to be one to say I told you so, but whether you agree with the banks or think they're just bloodsucking corporations, the reduction of late fees WILL NOT benefit ANYONE, and will in fact cost everyone more money.

 

[o_mlly]

Translation, we couldn't reap enough megaprofits from fees, so no we're going to squeeze blood from the stone with higher rates.

Let's not let the facts get in the way of a good cry.

The fact is these "bloodsuckers" are really not very good at bloodsucking:

"Taken together, average profitability for the 2020–21 period was 4.67 percent, slightly above the average rate of profitability for the 2001–19 period of 4.25 percent."

https://www.federalreserve.gov › publications › files › ccprofit2022.pdf

 

[Ana the Ist]

Credit card fees slashed for millions of Americans

The White House said President Joe Biden is committed to making sure "corporations are held accountable when they try to rip off Americans."

www.newsweek.com

Did they similarly cap rates?

 

[Ana the Ist]

Thanks for the link.

For anyone who doesn't want to click the link, here is the entire statement:

“Today’s flawed final rule will not only reduce competition and increase the cost of credit, but will also 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 for all consumers – even those who pay on time. It comes as the CFPB continues to use misleading blog posts and irresponsible press statements to paint an inaccurate and distorted picture of today’s highly competitive credit card market, which offers consumers a wide variety of card programs and features they value – provided by banks of all sizes across the country. Just days before the State of the Union, this supposedly independent agency is clearly choosing to put politics over sound public policy.​

​

“In creating today’s final rule, the CFPB relied on flawed assumptions and a mischaracterization of the important role late fees play in promoting responsible consumer behavior. Not surprisingly, the Bureau disregarded industry data about the true cost of late payments. It is highly unusual for a final rule to remain essentially unchanged from its proposal despite detailed stakeholder comments offering reasonable alternatives. This final rule makes clear that the CFPB’s mind was made up from the beginning – the very definition of an arbitrary agency action. We will closely review this final rule and consider all options to fight the harmful consumer policy coming out of Director Chopra’s CFPB. This rule should not be allowed to go into effect.”​

Huh. Unintended consequences. Whodathunkit?

I don't want to be one to say I told you so, but whether you agree with the banks or think they're just bloodsucking corporations, the reduction of late fees WILL NOT benefit ANYONE, and will in fact cost everyone more money.

It's pretty stupid...and would have been better to cap rates lower than they are now, while a temporary relief from late fees may seem nice...banks will just raise rates and credit scores will drop.

 

[o_mlly]

It's pretty stupid...and would have been better to cap rates lower than they are now, while a temporary relief from late fees may seem nice...banks will just raise rates and credit scores will drop.

As bad as capping fees is, regs capping rates would be worse. Government price controls (the interest rate is the price of money) have never worked. They only result in a reducing supply, in this case, the amount of loanable funds.

Banks rely on the spread between the interest rate to acquire funds (depositor's rates) and interest rate charged on loans. The FED open market operations determine the former rate and the credit worthiness of the borrower the latter. If the latter is capped then the banks will necessarily reduce the loanable funds and then fewer borrowers can qualify for loans, especially unsecured loans, as are all credit card loans.

 

[BCP1928]

It's pretty stupid...and would have been better to cap rates lower than they are now, while a temporary relief from late fees may seem nice...banks will just raise rates and credit scores will drop.

It depends on whether o_mlly is right and the credit card market is not competitive. In that case banks have no need to absorb the costs. In theory, a person could switch to a card from a bank which did not absorb the cuts to one which did, but that's a nuisance and there are other factors in credit card choice besides slight difference in rate anyway.

 

[probinson]

If the latter is capped then the banks will necessarily reduce the loanable funds and then fewer borrowers can qualify for loans, especially unsecured loans, as are all credit card loans.

Would that be such a bad thing? There are a good many people who probably shouldn't have credit cards at all. I know that credit cards can be incredibly beneficial when a need arises and you don't have the funds to pay for life's surprises, but people often get themselves into a mess with credit cards by buying things they don't need and can't really afford. Maybe we're too willing to extend credit to people. Perhaps being more selective in who gets credit and how much is the reform that we really need.

 

[o_mlly]

Maybe we're too willing to extend credit to people. Perhaps being more selective in who gets credit and how much is the reform that we really need.

We do have usury laws in the various states but they often have cutouts for certain types of loan transactions.

As a general principle, I am opposed to the idea of the "nanny state" that would limit free enterprise transactions between a willing borrower and a willing lender. The remoteness of the governing entity to the particulars would cause a "broad brush" approach effecting more damage than good imo.

The "we" above who may be too willing or who ought to be more selective are the credit card issuers, and that is the best way imo to manage who and how much to lend out. If the issuer determines that the borrower is able and willing to repay the debt on an unsecured loan then the interest rate charged will and should reflect the risk the issuer assumes.

 

[The Barbarian]

I learned a long time ago that credit cards keep you broke. I only have one and I keep it below a thousand dollars so if fit hits the shan I can pay it off at one lick.

I've got 4. Less than $200 on all of them combined. Oldest one is now 50 years old. You won't believe what that does to boost credit ratings. But you're right; credit cards are a major problem for many people, with the system designed to keep you paying off increasing debt.

 

[RDKirk]

Chicken is good. And probably better for health than pork chops.

At the time of that campaign promise, the US was still mostly small-town and agrarian and a great many people depended on the ubiquity of rabbits hunted on the way home from work for their daily protein. Chicken in the pot was a semi-luxury. The promise implied that people would have more money in their pockets.

 

[BCP1928]

We do have usury laws in the various states but they often have cutouts for certain types of loan transactions.

As a general principle, I am opposed to the idea of the "nanny state" that would limit free enterprise transactions between a willing borrower and a willing lender. The remoteness of the governing entity to the particulars would cause a "broad brush" approach effecting more damage than good imo.

I thought you were of the opinion that the credit card market was not a free market.