Senator Elizabeth Warren claims that the Trump administration’s cutbacks at the Consumer Financial Protection Bureau (CFPB) cost consumers $26.5 billion. But the method she used to calculate this scary number is hopelessly oversimplified. Regulation has costs, and those costs need to be balanced against benefits. Indeed, the Dodd-Frank Act calls for the bureau to consider the costs and benefits of its actions, especially how these actions affect consumers’ access to credit. Senator Warren seems to have forgotten this basic instruction.
Under the Biden administration, the CFPB capped credit-card late fees and limited bank overdraft fees. Senator Warren claims that these rules would have saved consumers over $20 billion. But both the caps on late fees and on overdraft fees would also have harmed consumers. Late fees discourage consumers from making late payments and overspending. And if fees are capped, card issuers are likely to limit the costs of late payments by lending less to consumers in need or charging higher fees elsewhere—a well-known effect of regulating credit card charges. The CFPB’s limit on overdraft fees would have saved people who bounce checks some money in the short run—but other consumers would lose out, as overdraft fee caps would lead banks to reduce overdraft coverage and raise minimum account balances.
