A cap on credit card late fees sounds great, but this plan would hurt NC families | Opinion
As an instructor at a historically Black university in North Carolina, I’m extremely concerned that a new regulation proposed by the Consumer Financial Protection Bureau will have significant ramifications for low-income families in our state, especially those of color.
The Consumer Financial Protection Bureau (CFPB) has proposed reducing the cap on credit card late fees from $41 to $8. While the intention is to protect financially vulnerable Americans, there are potential adverse effects. The rule could limit access to credit and lead to higher interest rates for these families, exacerbating their existing financial challenges.
In our state, many small financial institutions that provide loans and credit may struggle to sustain themselves under the price cap. Some may be forced to close, while others may have to increase their interest rates or tighten their borrowing standards. This would negatively impact the very people the CFPB rule aims to help.
It is crucial to avoid losing more small banks in North Carolina. A June CFPB report identified gaps in banking and credit access in the Southern United States, which includes North Carolina. It found “banking deserts” — local communities that do not have a single bank or credit union — are prevalent throughout the region. This late fee rule could put more small banks out of business.
Access to banking and difficulty affording everyday goods due to inflation are interconnected in a cycle of financial strain. When individuals have limited access to banking services, they face challenges in managing their finances effectively, including saving money and accessing credit. As inflation occurs and the prices of everyday goods rise, the purchasing power of individuals diminishes. This makes it even more difficult for them to afford essential items like food, housing and healthcare.
Without access to banking, individuals may be forced to rely on alternative financial services like check cashing services, payday loans and other predatory businesses that often come with high fees and interest rates. Additionally, the lack of financial tools like checking and savings accounts, loans and financial education, which banks provide, hinder an individual’s ability to cope with inflation and accumulate wealth, which perpetuates economic inequalities and further restricts access to banking services.
Smaller banks have historically offered consumers lower fees on checking accounts. They also tend to be more responsive to the needs of smaller businesses and likely to tailor financial products and services to the needs of underserved communities. For many Americans living paycheck to paycheck, these benefits are critical. Driving up the cost of checking and savings accounts will only create more un-banked citizens, drying up their need for capital.
The Small Business Administration’s Office of Small Business Advocacy told the CFPB in a letter of concern that “a reduction in fees may result in banks or credit unions extending credit to fewer borrowers or reducing credit to existing or future borrowers.” This aligns with the worry that North Carolina’s minority communities would suffer the most.
Black households in North Carolina have a median net worth of just $3,000, while white households have a median net worth of $68,441. During a time of high-interest rates and inflation, the entire country has faced difficulties affording basic necessities. The North Carolina Department of Commerce recently said the South Atlantic region, which includes our state, has been particularly burdened with intense rate increases. This adds to the struggle of families to meet essential living expenses.
The implementation of the CFPB’s late fee cap may seem like a small relief for North Carolinians struggling to pay credit card bills on time. However, it will also make it even more difficult (if not impossible) for the state’s small banks to operate, which can increase interest rates, reduce capital allotment, and impose substantial losses on thousands of vulnerable families who rely on various forms of financial assistance. This outcome is unfair and the CFPB should be aware of it before it becomes irreversible.
Lisa Cole Martin is an adjunct instructor in the Family Financial Planning Minor/Certificate Program at North Carolina A&T State University.
