If consequences for bad behavior are reduced or eliminated, expect more bad behavior.
Recently the Biden administration decided to cap "late fees" for credit card payments at $8. Will this help the poor, or actually hurt them? And will it likely be overturned by a Trump-appointed conservative Judge? I suspect the latter.
I haven't paid a "late fee" on a credit card in decades, and that's not just because I'm "rich" or something, but rather that I developed financial discipline, out of necessity. Not only that, but with online banking and cell phones, there is really no excuse to not knowing when a payment is due and for how much. I pay my credit card almost daily - and reconcile purchases with my own record using Quickbooks. It took me a long time to learn this - and the banking industry would just assume you never learned it, period.
Back when I was in my 20's, my financial life was a wreck. I would bounce checks to buy beer and pot, be late with credit card payments and pay enormous interest rates on what seemed like an intractable credit card debt. A lot of people live this way their whole lives - I suspect at least half the population.
But like with auto insurance, eventually I got the message after being financially punished again and again. I slowed down, looked carefully at my insurance bills, and my rates went down as a result. Not free, of course, but a lot less than what I was paying in the "risk pool." when I was in my 20's.
Unfair? Maybe. A self-inflicted wound? You bet.
But I remember from those times, thinking that an $18 bounce check fee or a $15 credit card late fee was the "cost of doing business" and just ate them - factoring it into my nightmare finances, much as a payday loan victim does with their 300% interest. It was a stupid thing to do.
Of course, since those days, interest rates on credit cards have gone up (even as the prime rate had dropped to historic lows) and late fees and bounce fees have gone up as well. You can really put yourself out of business in a heartbeat by being fiscally irresponsible.
So I wonder, will lowering late fees to $8 help or hurt? And of course, you might initially say, "Of course it will help! The poor will pay less!" Or will they? Because I was willing to "eat" a $15 late fee back in the 1980's if it meant I had $15 more today to buy pot and beer. I wonder if people will be more inclined to be late with credit card payments, seeing $8 as a "trivial" amount and not worth worrying about. It is akin to the "paycheck to paycheck" working slob who is in line at Starbucks every morning (and Chik-fil-A every noon) spending money they don't have on "convenience" foods. "It's only a few dollars - I'll never get rich cutting back on small things like that!" they say.
But over time, a few dollars a day adds up to hundreds of thousands, a few dollars a month adds up to tens of thousands. $8 a month invested at 10% over 30 years is 17 grand. It takes time - and discipline - to accumulate wealth. Is a drive-through coffee or a late fee really worth forgoing real wealth?
Again, when young, these things seem stupid. 30 years is nearly forever, and I can play catch-up later on! So do we reward that kind of thinking or punish it? That is the question, I have no concrete answer.
But I do know that on a personal level, what disciplined me was discipline, not being "nice." Early on, I recall bouncing a check at the bank and they waived the fee as I was a "good customer" or something like that. They would actually call me to tell me I was overdrawn so I could come in and make a deposit. That simply encouraged me to do that sort of nonsense even more. Eventually, they got fed up and started charging me bounce fees. I was outraged! I was an idiot.
But it motivated me to stop playing fast-and-loose with money. Take away that motivation and you take away fiscal responsibility.
It is akin to how some jurisdictions are failing to prosecute "trivial" crimes like shoplifting or turnstile-jumping or even car theft. It doesn't take long for word to get out that it is a free-for-all at local businesses. Just take what you want! They won't prosecute you for the theft! Then the store closes, as they are losing money and "Community Activists" decry the "evil corporation" for creating a "food desert" or whatever. You can't have it both ways.
People thrive on discipline and when you remove it, a lot of people have no direction or boundaries. "Do your own thing, man!" is fine for a person of intellect and moral values. For others, it is a mere invitation to criminality and wallowing in one's own crapulence.
But of course, capping late fees to $8 is a political move, much as the incremental student loan forgiveness actions have been. The Biden administration is under attack from the far-Left, who would rather see a fascist dictatorship and our country destroyed in civil war than to see moderate gains in the progressive agenda. This latest action is an attempt, I think, to pander to that faction - the bouncy-check kids such as I was, back in those halcyon days when all my personal problems were someone else's fault.
Of course, this action is window-dressing to the poor, as it does not address the staggering interest rates on many credit cards. A poor person facing 25% interest rates (or higher) isn't going to dig themselves out of a financial hole by capping late fees to $8. But I suppose it is a start. The staggering interest rates charged by slimy used car dealers (I am being redundant here) and payday loan places almost make the credit card companies look legit.
I said it before, the snowball effect works when you are the side of light and goodness. You get the best offers and interest rates and your wealth accumulates. You get on the wrong side and the reverse snowball effect kicks in - with staggering interest rates, late fees, bounce fees, and other bad bargains. Bankruptcy is almost a given at that point.
And this is by design. I noted before that if you borrow from your employee's withholding funds, the IRS will slam you with fines and late fees and interest to the point where you will never dig yourself out of the hole. This is their way of telling you that your business is insolvent and should have closed years ago. Ditto for late fees and interest charges - the idea is to motivate you to stop spending and start getting your shit together - or declare bankruptcy. It makes no sense to some people, particularly business people, that a bank can "call your loan" and force you out of business. That's the idea - to force you to liquidate while there is still something there to liquidate.
In that regard, an $8 late fee (or any other late fee, bounce charge, interest payment) is usually optional. Once you get into a financial mire, maybe you run out of options. But if you pay your bills on time, well, these fees never kick in. I doubt this latest action will affect me one iota in that regard.
