When my kids were little, my wife and I would take them to the public library and each child would check out a few books. We made note of the due date because there was a five-cent per day fine for late returns. We refused to cover the fine for our kids, using this financial incentive to instill a little discipline. Hey, a parent can use all the help available!
But that was two decades ago. In 2021, libraries in my county stopped collecting fines for overdue books. These days, parents are on their own when it comes to teaching discipline.
And they certainly won’t get any help from the Consumer Financial Protection Bureau, at least when it comes to incentives designed to encourage prompt payment of credit card bills. In early March, the CFPB adopted a rule capping the late fee credit card companies can charge at $8. Typically, the largest banks have charged late fees in the range of $30 to $40. I am not saying I am a fan of high fees, but I am definitely not a fan of government price fixing, and I do believe the higher fees serve as a meaningful deterrent. Perhaps schooled by my own childhood library experiences, I try to pay my credit card bills on time.
Apparently, I’m like a lot of Minnesotans. The Financial Industry Regulatory Authority recently looked at credit card data to see what percentage of adults in each state sometimes carry a balance on their cards. Minnesota had the third-lowest rate at 35.8 percent. Michigan had the lowest percent at 28.9 percent; Hawaii came in second at 32.9 percent. The national average is 42 percent.
While the CFPB says its late fee rate cap will save 45 million Americans each $220 per year, Minnesota, Hawaii and Michigan will get a disproportionately smaller share of that savings. I suspect the highly politicized CFPB is mostly interested in winning over people who live in states that President Biden would like to pick up in a rematch with Donald Trump this fall. The states with the highest percentage of adults who carry credit card balances are mainly Red states. In fact, the top eight states (W.V., Miss., Alaska, Ark., Mont., Okla., Texas and Ohio) all voted Republican in the last presidential election. Coincidence?
Late fees are clearly out of fashion, even though I believe they serve a legitimate purpose. Price fixing is always political and it is nearly impossible to miss the partisan motivation behind this anti-competitive price cap.