Photo: Consumer Financial Protection Board Director Rohit Chopra
Running a small business is no easy feat. Owners must navigate significant headwinds, from supply chain issues to inflation to staffing shortages. One thing these owners could count on is having their community bank as a ready partner to provide affordable capital. Accessing credit from the bank has allowed businesses to grow.
That’s why it’s concerning to small-business owners when they hear about actions that could weaken the ability of our community banks to have our backs. Federal regulators’ proposal to lower the cap on credit card late fees could have such an unintended consequence.
The Consumer Financial Protection Bureau has proposed a rule that directly threatens small businesses’ access to capital. The rule would reduce credit card late fee payments to $8 and eliminate the annual inflation adjustment for the safe harbor amount. Like so many government proposals, regulators have failed to consider the severe effect it would have on small businesses, consumers and the local community banks that support them.
If enacted, this rule will increase consumer costs and create barriers for small businesses. Here’s why.
Lowering credit card late fees sounds great until you consider that it will disincentive consumers from regularly paying their bills on time. Banks and credit unions will have no choice but to offset these costs by making financial services more costly for everyone — especially those who pay their bills on time.
By giving late payers a break, the CFPB’s proposal will lead to higher costs for responsible consumers and businesses. As a result of delinquent late payments, it would also become more expensive for consumers to access credit. If small businesses lose access to affordable credit, they essentially lose one of the best ways to start and expand their business.
This rule would directly hit small community banks and credit unions. This new rule would be detrimental to them as they often depend on late fees to cover the costs of extending credit to consumers. To recoup their losses and have a fighting chance at remaining in business, they will have no choice but to reduce their credit lines and annual percentage rate, tighten account standards, and roll back rewards programs.
This amounts to serious harm for small businesses.
Access to affordable capital is vital. It allows business owners to buy equipment, hire workers, and invest in companies and employees that put them on the path toward growth.
Operating a small business requires grit, determination and a sound business plan. It also requires pro-growth policies coming out of Washington that will help entrepreneurs. I urge the CFPB to reconsider this ill-conceived proposal that will unduly affect small businesses.
