Campaign Cash Goes In, Late Fees Come Out

Credit card companies funneled more than $600,000 during the last election cycle to House Republicans now fighting to preserve the companies’ ability to charge excessive late fees.

Among the 17 Republicans who sent a letter to federal regulators this month opposing a Biden administration effort to rein in the fees, at least 15 received contributions from the credit card industry in the 2022 election cycle. Three of the lawmakers are among the top five House recipients of campaign cash from the industry.

In February, the Consumer Financial Protection Bureau (CFPB) proposed a rule that would limit most credit card late fees to $8, down from the $41 companies are currently permitted to charge. Such late fees are a major profit center for credit card companies, and cost card-holders $12 billion in 2020, according to the consumer watchdog agency.

The fees fall most heavily on consumers in low-income and majority Black neighborhoods, and the agency estimates that capping them could save as much as $9 billion a year.

Credit card issuers were technically prohibited from charging unreasonable fees by a 2009 law that also restricted interest rate increases. But when the Federal Reserve finalized rules implementing the law the following year, the agency included a loophole adjusting the maximum allowable fee with inflation each year, even if credit card companies’ collection costs remained the same.

The CFPB proposal would eliminate the automatic annual increase and require credit card companies to prove that any fees in excess of $8 are necessary to cover their collection costs. It would also prohibit any fees exceeding 25 percent of the minimum payment due — a welcome change for anyone who’s ever been hit with a double-digit penalty on a 50-cent underpayment — and establish a 15-day grace period.

The U.S. Chamber of Commerce, bank lobbying groups, and individual credit card companies are opposing the rule, arguing that limiting fees on delinquent borrowers will necessitate raising costs for other consumers.

House Republicans echoed those arguments in a March 1 letter, writing that the CFPB’s proposed measures would “socialize the costs of late and defaulting payors” by forcing credit card issuers to offset lost income by increasing interest rates. The letter, led by House Financial Services Committee chair Patrick McHenry (N.C.) and committee member Andy Barr (Ky.), asks the consumer watchdog to provide its economic justification for the rule.

The CFPB estimates that credit-card companies generate five times more income from late fees than they spend to collect the late payments.

McHenry and Barr were the fourth and fifth largest recipients, respectively, of campaign donations from the credit card industry in the House last cycle. Rep. Blaine Luetkemeyer (R-Mo.), who also signed the letter, was the House’s top recipient of credit card industry donations.

Republicans have also launched a series of broad-ranging attacks on the CFPB itself, which was created as part of the Wall street reform law Democrats passed in response to the 2008 financial crisis.

The House Financial Services Committee will hold a hearing on Thursday “to examine the leadership structure, funding, budget, and operations of the CFPB and areas in which reforms are needed.”

The CFPB is separately facing an existential threat in the form of a pending Supreme Court case challenging the constitutionality of its funding arrangement.Public comments on the proposed rule restricting late fees are due April 3.