Nam Y. Huh/AP Photo
Republicans in the House and Senate have filed resolutions of disapproval of the rule finalized last month by the Consumer Financial Protection Bureau, which caps credit card late fees at $8.
The Consumer Financial Protection Bureau’s $8 cap on credit card late fees has had a wild ride on the road to implementation. After being finalized last month, the rule drew a lawsuit from the U.S. Chamber of Commerce, which sought an injunction in Fort Worth. No credit card companies are located in Fort Worth; the venue choice was made purely to ensure that the case would be heard by a right-wing federal judge.
The first district court judge assigned to the case owned a bunch of credit card company stocks and recused himself; the second judge, a Trump appointee, showed remarkable candor in saying the case had no business being in Fort Worth and should be heard in Washington. Then the far-right Fifth Circuit Court of Appeals disagreed with the Trump judge and tried to pull the case back to Texas. Then one of the authors of that opinion, it turned out, also owned a bunch of credit card company stocks. He has asked for briefings on whether he should recuse himself, basically seeking outside opinions on his own personal corruption.
That’s not the only attack on the late fee rule. Now congressional Republicans are coming after it, in the process finally setting up a partisan fight over the popular issue of junk fees, which the Biden administration has been pushing for the past few years. Republicans, it turns out, are objectively in favor of junk fees. And by next week, they’ll be on the record for them.
Republicans in the House and Senate have filed resolutions of disapproval of the late fee rule. Under the timetable set by the Congressional Review Act, such resolutions are fast-tracked through the Senate, giving the minority party the ability to get them to the floor, regardless of the majority leader’s prerogatives. In the House, where Republicans are in charge (sort of), we could see the resolution get an up-or-down vote as soon as next week. That means Republicans themselves will have forced a vote on whether credit card late fees should be higher or lower. (Spoiler alert: They want them higher.)
Not only that, but Tim Scott, the South Carolina senator who is on the short list to be Donald Trump’s vice-presidential running mate, has taken on the role of the leading champion of junk fees. Scott, the ranking Republican on the Senate Banking Committee, proudly announced this week that he’s introduced the resolution to kill the late fee rule. He even listed all the corporate lobbyists who support him in the effort: “the Consumer Bankers Association, America’s Credit Unions, Independent Community Bankers of America, Bank Policy Institute, American Bankers Association, Americans for Tax Reform, Competitive Enterprise Institute, and the U.S. Chamber of Commerce.”
So here we have a potential VP pick and the financial industry teaming up to support junk fees. Every Republican, including those in swing districts, will now have to decide whether they support higher costs on Americans, which will be redistributed to the banks and the card companies.
Not only does this vote put Republicans on the spot over junk fees, it’s a doomed vote, completely initiated by their own possible VP nominee.
Let’s step back and describe this late fee rule. The CARD Act of 2009, passed by Congress and signed by President Obama, barred credit card companies from imposing “excessive” penalties and fees on customers. The Federal Reserve, an agency so bad at consumer protection that Congress created the Consumer Financial Protection Bureau to do the job for them, implemented the CARD Act rule by saying that late fees could only be equivalent to the costs credit card companies incur from late payments. But then the Fed instituted an absurdly large safe harbor, granting immunity for late fees as high as $30 for the first offense and $41 for subsequent ones.
This is in no way equivalent to the costs credit card companies actually incur from late payments. The CFPB did that work and calculated the amount to be around $8. Which meant the Fed’s rule was giving a giant windfall to the credit card industry. It’s expected that, when the rule is implemented, consumers will save $10 billion per year on reduced late fees; all of that, according to the CFPB’s calculations, was excess profit for the banks.
Sen. Scott’s claim is that there’s no way such companies can provide credit without oversized fees. “It will decrease the availability of credit card products and important financial services, particularly for Americans who need them most,” Scott said in a statement. In other words, poor Americans who struggle with their bills should be thankful that they’re being squeezed for profit by financial institutions.
The CFPB did nothing more with this rule but apply the CARD Act as written, remove a handout to big banks, and limit a junk fee worth $10 billion a year. This is at a time when higher costs are top of mind for lots of Americans. Now there will be an actual vote in Congress, where Republicans will likely line up to unanimously demand higher costs.
The even crazier part about this is that there is no chance whatsoever that this gambit will work for Republicans. Democrats control the Senate, and I’d be surprised if any of them want to join with Republicans in supporting higher costs. Even on the off chance that this gets through the Senate, President Biden has championed eliminating junk fees and would surely veto the bill. There’s no chance Republicans have enough votes to override him.
So not only does this vote put Republicans on the spot over junk fees, it’s a doomed vote, completely initiated by their own possible VP nominee. It puts Republicans in an incredibly lonely position politically. Few causes poll better than eliminating junk fees. One poll from Data for Progress found junk fee prevention to be at nearly 80 percent support, including 72 percent of self-identified Republicans.
In politics, an argument typically needs two sides for it to be elevated in the national conversation. “We’ve seen Democratic unity on fighting surprise junk fees and naming corporate villains like credit card companies, banks, and airlines,” said Adam Green, co-founder of the Progressive Change Institute, which worked with the Biden administration last year to arrange local events on junk fees in places like Michigan and Pennsylvania. “What’s been missing is opponents smoking themselves out and raising the volume of this fight so the public knows who is on their side.”
Not only will there now be a debate, but there will be votes that can be pointed to in campaign ads. One party wants to save people from excessive and unnecessary fees, and the other wants to help companies impose those fees. The votes will help illustrate that.
Making this work requires competent campaign strategies and political communications. But for a while, the raw materials were not there. That’s over. Republicans are objectively pro–junk fee.
And the Democrats are eager to use that fact. White House Assistant Press Secretary Michael Kikukawa gave the Prospect this statement: “As the most pro-competition president in decades, President Biden strongly supports the Consumer Financial Protection Bureau’s work to lower costs for consumers and take on corporate greed—including by cutting credit card late fees and saving Americans more than $20 billion in junk fees every year. Unfortunately, Congressional Republicans are siding with special interests and big corporations to try to undercut the Consumer Financial Protection Bureau, which would raise costs and reduce options for consumers. The President won’t let Republicans undercut hardworking families for the sake of corporate profits.”
UPDATE: After press time, Senate Majority Leader Chuck Schumer (D-NY) also weighed in on this with a tweet: “If you can believe it, Senate Republicans are actually trying to increase credit card fees for Americans. Democrats will not allow this bill to become law.”
