Written by Karen Kerrigan | SBEC
Calls for government intervention in the economy are often touted as a way to provide relief and equity. However, many of these proposals have unintended consequences that will create long-term costs for businesses and consumers.
For example, as part of the government's all-out war on “junk fees,” federal agencies plan to intervene significantly in the private sector and upend many long-standing business models. The downstream effects of such government overreach would harm far more consumers and small businesses than the relatively few that this misguided proposal claims to protect. right.
Economic uncertainty has plagued small businesses over the past three years. Indeed, the recent Small Business Survey shows that cautious small business owners are anticipating further headwinds and economic downturns, and that momentum is showing no signs of slowing down.
These entrepreneurs focus on challenges around a variety of issues, including inflation, rising interest rates, and energy costs, among others. Policy attacks on “junk fees” will only exacerbate these problems and distract from real solutions to stabilize the economy and inflationary pressures that are a source of unrelenting uncertainty.
Rather than promoting equity and redress, most “junk fee” proposals actually backfire on consumers. For example, a new Consumer Financial Protection Bureau (CFPB) rule capping late fees on credit cards will ultimately force consumers to bear the brunt of the policy.
Capping late fees not only reduces incentives to borrow responsibly, but also penalizes consumers who pay on time. Costs will shift, including fewer valuable rewards and cashback opportunities, higher interest rates, and ultimately less access to credit.
There is little evidence that consumers want government-led change. Most Americans believe credit card late fees are legal and do not constitute “junk fees,” according to a recent report. In fact, 76% said they “accept it is their personal responsibility to pay on time” and that late fees are something they “agreed to pay” if they are late.
Additionally, consumers believe it is unfair that those who do not pay on time are penalized.
Stress on financial institutions means that the provision of trust and services to small and medium-sized businesses suffers. Such intrusive regulations have a track record of producing harmful consequences.
For example, the Durbin Amendment to the Dodd-Frank Act limited free checking accounts and increased minimum balance requirements. Unfortunately, the CFPB did not heed these warnings and, in fact, failed to adequately address concerns about the impact on small businesses and financial institutions.
In response, the Small Business Administration Office of Advocacy recommended that the CFPB “maintain the status quo until sufficient data is available to confirm the economic impact of this action on small entities.”
Although the CFPB's final rule applies only to the “largest credit card issuers,” it does little to limit the negative effects of these regulatory exemptions on small financial institutions and small businesses. Your access to credits and beneficial services may be limited, limited, or even eliminated.
Capping fees increases financial institutions' operating costs and reduces their ability to provide needed credit facilities to consumers and small businesses. That's why the Small Business and Entrepreneurship Council signed a coalition letter with 30 other pro-growth and consumer organizations to explain these concerns to President Biden and CFPB Director Rohit Chopra.
The letter said such regulations could “could cause small financial institutions, such as credit unions, that rely heavily on fees as a source of income, to struggle to stay afloat, and, as a result, reduce the ability of Main Street businesses to… “decreasing the availability of credit for
President Biden's fight against “junk fees” may seem like a winning election-year strategy to address consumer and small business concerns about soaring prices. But most voters know better. This government overreach will only lead to further economic and financial turmoil.
The administration would have been well aware of this fact had it thoroughly analyzed and considered the long-term damage these proposals would cause. Unfortunately, this administration's pattern is to ignore the facts or ignore the facts and move forward blindly, without caring about the consequences.
Karen Kerrigan is president and CEO of the Small Business & Entrepreneurship Council.
