As someone who has taught financial literacy throughout the Tar Heel state, I know that North Carolina families and small businesses are doing everything they can to pay bills on time, even as prices continue to go up. Unfortunately, a new proposal from federal regulators in Washington could soon punish those who are trying to do the right thing. 

The proposal in question comes from the Consumer Financial Protection Bureau (CFPB), and it would lower the cap on credit card late fees. This change would essentially penalize those who pay their bills on time for the benefit of those who do not and set off a series of events that would hurt consumers, small businesses, and local community banks.

Federal regulators are considering reducing credit card late fee payments from $30 to $8. Initially, this may seem like good news for cardholders. In reality, it will increase costs for consumers, restrict much-needed credit for small businesses, and decimate local banks that understand their communities in ways that big banks do not. 

Consumers stand to lose a lot as a result of this proposal, which takes away the incentive to pay bills on time. In turn, banks and credit unions will have no option but to offset these costs by making their services more expensive for everyone, lumping in those who pay their bills on time together with those who don’t. 

When people don’t pay their bills on time, credit issuers will also be forced to increase interest rates, scale back popular rewards programs, and limit access to new lines of credit. Importantly, credit scores for delinquent payers will also plummet, resulting in higher interest rates and reductions in lines of credit — especially among communities of color that have traditionally faced systemic barriers to credit access.

Small businesses will also pay for this wrongheaded policy change. North Carolina is home to an estimated 964,000 small businesses, employing 1.7 million people in our state. Many of these small businesses rely on access to affordable credit to survive. Access to credit allows businesses to hire more workers, purchase needed supplies, and expand their footprint.

Unfortunately, the CFPB’s proposal has the potential to severely restrict this access to capital, because banks would no longer be in a position to lend to potential borrowers due to the losses associated with people failing to pay their bills when they’re due. As someone involved in the restaurant and real estate industries in our state, I have seen firsthand how critical access to credit is for small businesses and fear this proposal could put many of these companies out of business due to ballooning banking costs or being cut off from credit altogether. 

Finally, smaller banks and lenders will be disproportionately hurt by this rule. While big banks will be able to absorb the losses caused by lowering the cap on late fees, smaller community banks will struggle to afford the losses incurred. Many small businesses in Winston-Salem and throughout our state prefer to work with smaller banks and credit unions that they know and trust. This proposal has the potential to put these local financial institutions out of business, taking away a key financial lifeline for many businesses in our community.

The vast majority of North Carolina families and small businesses make responsible financial decisions and are doing everything they can to meet their financial obligations. Federal regulators should not create a policy environment in which we are punishing people who pay their bills on time and restricting access to credit for small businesses. Our state’s elected officials should stand by North Carolinians and vocally oppose this proposal.