What seems like a good idea in the halls of a Washington, D.C. government bureaucracy doesn’t always translate well in the real world or the private sector. The latest example comes from the Consumer Financial Protection Bureau (CFPB), an agency that is ironically charged with the responsibility of looking out for consumers. The CFPB has proposed a new rule that would drastically reduce credit card late fees and eliminate the annual inflation adjustment for the safe harbor amount.
The unintended consequences of this rule far outweigh the relief it may provide consumers who cannot keep up with their monthly credit card bills. The fact is that this rule would seriously restrict Texas small businesses’ access to affordable capital. If the rule goes forward, small businesses, our state’s greatest economic driver, will be faced with new hurdles to expanding their operations, hiring new workers, and ultimately thriving.
Texas small business owners and entrepreneurs rely on banks for access to affordable credit. If the CFPB forces banks and credit unions to cap credit card late fees at $8, down from the typical $15 to $35, customers will lose the incentive to pay their bills on time. Local banks and credit unions will then have no choice but to offset these new cost burdens by making the basic financial services they provide more expensive for everyone else. These services include access to affordable credit – a key component of many Texas businesses’ ability to grow and prosper.
Small businesses here in Texas and around the country often start with short credit histories and big dreams. For instance, in 2021, Longview’s Community Bank provided a line of credit to a locally-owned upstart home inspection company called Prime Inspections, which allowed the newly-formed small business to launch into the real estate market and take flight. Since then, that line of credit has allowed the company to significantly expand its footprint, boosting the local economy and providing more Texans with a solid paycheck. Obstacles to accessing credit for small businesses like this will make it more difficult for them to borrow money, expand and hire, harming the very consumers this rule purports to help.
Many Texas small businesses prefer to work with local community banks that they know and trust. These financial institutions would be severely impacted by this new rule, as they often rely on late fees to cover the costs associated with extending lines of credit to consumers and businesses. This rule will devastate local banks and credit unions and their ability to offer affordable credit to the small businesses they serve.
I run an organization that represents thousands of businesses in the Lone Star State. Our highest priority is to provide a regulatory environment that allows the private sector to thrive so it can employ more Texans and strengthen local economies. CFPB Director Rohit Chopra should consider how this proposed rule would directly impact small businesses in Texas. Sometimes ideas that start in Washington, D.C. should stay in Washington, D.C.
Glenn Hamer is the President and CEO of the Texas Association of Business.