A Biden administration proposal to reduce and eliminate so-called “junk fees” charged by financial institutions is likely to harm the very people it purports to help, the Wall Street Journal said in an editorial today. The CPFB under Director Rohit Chopra has labeled fees charged for overdraft services as “surprise” fees even though they are disclosed upfront, the editors noted. However, banks use revenue from those fees to offer free checking and other services that otherwise would come at a cost.
“Banning such fees could cause banks to restrict credit to lower-income customers who are more likely to overdraw their accounts,” the editorial said. “The same goes for the CFPB’s proposal last week that would effectively cap credit card late fees at $8. This might cause card issuers to shun low-income customers and push more to payday lenders that charge higher interest.”
The editors warned that the CFPB’s proposal could spell the end of free checking accounts and other low-cost banking services on which consumers depend. “[I]ssuing blanket bans on fees and unbundled prices will make markets less competitive, not more,” they noted. “It will also result in higher prices or fewer services for lower-income Americans.”