Do lower fees mean consumers pay more?

That’s essentially what Brad Karp is arguing in a June 1 essay in the American Banker, The CFPB’s late-fee proposal would harm the consumers it seeks to help (behind paywall but available on Lexis). Karp claims costs would go up for “the large majority of credit card customers” because

delinquencies would meaningfully rise. As the CFPB itself anticipates, this would lead to consumers facing higher interest rates, higher maintenance fees, reduced rewards, and – for those who pay late more often – reduced credit lines and negative impacts to their credit scores. And it would leave riskier borrowers with less access to credit.

Karp’s essay contrasts with a piece by Polo Rocha in the American Banker yesterday: One Citi card has no late fees. It reveals a lot about CFPB’s $8 plan. Rocha writes:

On one hand, the card’s staying power suggests that fees may not deter late payments as much as the industry has been suggesting. The flip side is that the Citi card is about as straightforward as it gets, with none of the rewards that have become a staple of the card industry.

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That would be a welcome change for some consumer advocates, who argue that late fees paid disproportionately by lower-income consumers help fund the glitzy rewards programs that many wealthier cardholders have grown accustomed to.


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