The Consumer Financial Protection Bureau (CFPB) encountered strong criticism on Capitol Hill during a hearing on “Politicized Financial Regulation and its Impact on Consumer Credit and Community Development” held by the Subcommittee on Financial Institutions and Monetary Policy on March 7. Critics argued that recent regulatory actions, including caps on credit card late fees, could impede innovation and negatively affect banks’ customers in the long run.
In his opening statement, Rep. Andy Barr (R-Ky.), the chairman of the subcommittee, expressed concern that recent regulatory actions might limit options and access to financial services, particularly through capped late fees and what he termed as “price controls” on various services. Barr emphasized the importance of fees, stating, “Fees serve a purpose,” and supported the need for proper disclosure and discerning use.
Ranking member Rep. Bill Foster (D-Ill.) highlighted concerns about businesses competing based on junk fees and emphasized the inefficiency of markets with high switching costs. He proposed solutions such as account portability and open banking to address these issues.
Witnesses before the committee cautioned that regulatory measures, including price controls, might have unintended consequences. Nicholas Anthony, a policy analyst with the Cato Institute, argued that the CFPB’s actions, especially fee caps, could lead to lower fees for consumers but result in higher costs elsewhere. He expressed concerns about potential limitations on the availability of free or low-cost checking accounts and other offerings.
Karen Harbin, president and CEO of Commonwealth Credit Union, testified that high regulatory burdens hinder credit unions from serving low- and moderate-income families effectively. She advocated for appropriate exemptions for credit unions and Credit Union Service Organizations (CUSOs) from some of the Bureau’s regulatory requirements. Harbin disputed the notion that fees solely benefit financial institutions, emphasizing their role in encouraging responsible financial decisions.
Consumer Bankers Association President and CEO Lindsey Johnson accused the CFPB of violating the Truth in Lending Act through misrepresenting consumers’ options regarding overdrafts. She also defended the transparency of credit card-related late fees and presented data suggesting improvements in consumer behavior related to credit card balances.
Santiago Sueiro, a senior policy analyst at UnidosUS, acknowledged progress made by financial institutions in reducing overdraft fees but stressed that challenges persist. He pointed out that working-class individuals and people of color are disproportionately impacted by overdraft fees and emphasized the importance of lowering these fees to alleviate financial pressures on vulnerable communities.
The hearing reflected ongoing debates about the balance between consumer protection and potential limitations on financial institutions’ operations and innovation.
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