One Texas Judge Is Standing Between You and Lower Credit Card Fees

The Pitch: Economic Update for May 16, 2024

Friends,

In this week’s episode of Pitchfork Economics, Rohit Chopra, the Director of the Consumer Financial Protection Bureau, stops by to talk with Nick and Goldy about what the organization has been up to lately. The CFPB, you may recall, was devised by Elizabeth Warren after the Great Recession as an advocate and protector for American consumers in the financial marketplace. (President Obama nominated Warren to serve as the CFPB’s first director, but his administration withdrew her nomination after staunch Republican opposition, which is when she decided to run for Senate instead.)

Chopra joined the podcast to talk about the CFPB’s latest initiatives, which include moving to ban medical debt from being reflected on credit reports, regulating bank overdraft fees, and capping the fees that credit card companies can charge for late payments. The latter regulation, in particular, would lower typical credit card fees for consumers from $32 to $8, which the CFPB says works out to “an average savings of $220 per year for the more than 45 million people who are charged late fees”

“For the past few years, we launched an effort to really attack the junk fees that have been creeping across the financial system,” Chopra explained on the podcast, arguing that with all the added fees financial institutions had been stacking onto everyday services, consumers had no reasonable way of knowing how much a service would cost until they received the bill. 

“I think we want an economy where businesses feel they’re going to make money by doing something honestly, transparently, and competitively,” Chopra concluded. It’s an argument that rings true to anyone who has been hit by an exorbitant late fee, a mysterious service charge, or an inflated monthly payment coming out of their checking account.

“For some people, it may be just an inconvenience. For others, it may send them in a tailspin of taking on debt or not being able to make ends meet,” Chopra said. “But for everyone, it just feels insulting. And I think an economy is not just about measuring standards of living. An economy is also about how people are treated and what people feel in their day-to-day life, when it comes to not just staying afloat but also getting ahead.”

That’s a remarkably compassionate statement from a public servant—and it happens to be true. We all know what it feels like to be nickel-and-dimed to death with additional charges on a bill, or blindsided with an extra expense because a transfer from savings to checking didn’t happen to go through on time. And because banking corporations have grown so huge and there’s so little competition in the market, we’ve come to expect getting fleeced as just the cost of doing business. That doesn’t feel good. It’s dehumanizing, and it leaves everyone feeling less optimistic about the economy.

But of course big business is paying high-priced lawyers to defend their right to pick our pockets with junk fees. The day before this podcast was published, Texas US District Judge Mark T. Pittman blocked the CFPB’s cap on credit card late fees. Pittman’s “preliminary injunction means the rule can’t go into effect until a hearing is held where the case can be adjudicated in greater detail,” explains CNN. 

The Chamber of Commerce claimed that it was taking the cap on fees to court because it would affect “responsible consumers who pay their credit card bills on time and businesses that want to provide affordable credit,” as though credit card and banking profits haven’t been skyrocketing for the last few years in part thanks to the exorbitant fees that they’re levying on customers.

If Pittman’s name feels vaguely familiar to you, it should: He’s the same Trump-appointed judge who single-handedly blocked the Biden Administration’s student loan debt forgiveness program, sending the case to the Supreme Court, which later overturned the program entirely. 

It’s frustrating when policies that would benefit tens of millions of Americans are blocked by one trickle-down judge for clearly partisan reasons, and progressives should in the long term consider passing legislation that prohibits big corporations from shopping for sympathetic judges like this.

But it’s also heartening that the CFPB is prepared for these kinds of roadblocks. In the Pitchfork Economics episode, Chopra admitted “there is a well-funded army of lawyers and lobbyists who have always been out to destroy this agency. Since day one, there have been efforts to defund us to limit our ability to take law enforcement actions against these big financial players.”

This morning brought some exciting news on that front: By a decisive 7-2 vote, the Supreme Court soundly rejected a broad challenge to the CFPB’s very existence. “The case involved a decision by the conservative U.S. Court of Appeals for the 5th Circuit that said the funding mechanism Congress adopted to ensure the CFPB’s independence violated the Constitution’s command requiring congressional appropriation of money,” explains the Washington Post. Had the case succeeded, it would have thrown the funding of other regulatory agencies into doubt. 

But as of this morning, the CFPB is officially here to stay. And Chopra, for his part, sees these oppositional efforts as validating. “In many ways, I see this as a reminder about how much money is at stake. If cheating is easier than competing, boy can you make a lot of money on it. And boy, are you going to want the public to not have real regulators and enforcers on their side,” he says. Luckily, the CFPB is on the public’s side, and they’re learning how to break through these trickle-down roadblocks, one case at a time. 

The Latest Economic News and Updates

High Interest Rates Are Hurting the Poor, Not Bringing Down Inflation

“Finally, some good news on inflation,” the New York Times’s Ben Casselman wrote yesterday.

“The Consumer Price Index climbed 3.4 percent in April from a year earlier, down from 3.5 percent in March…The ‘core’ index — which strips out volatile food and fuel prices in order to give a sense of the underlying trend — rose 3.6 percent last month, down from 3.8 percent a month earlier.”

Casselman continues, “It was the lowest annual increase in core inflation since early 2021.” The numbers dropped in some of the places where the American people will feel them the most: “New and used car prices and airline fares fell outright in April. So, crucially, did the price of groceries, long one of the most painful categories for consumers,” Casselman writes. “Even housing, the largest component of the inflation index and one of the most stubborn, showed cautious hints of improvement.”

Now that we’ve seen a good inflation report, all eyes are on the Federal Reserve and Fed Chairman Jerome Powell to see what they’ll do when the Fed meets next. Back when inflation was easing regularly at the end of last year, the Fed promised to lower the interest rate as many as three times in 2024, but they’ve kept rates steady after the inflation rate ticked up over the past three months.

Powell expressed uncertainty when asked earlier this week to predict whether today’s inflation report would drop, saying that “my confidence in that is not as high as it was, having seen these readings in the first three months of the year.”

But the Fed’s insistence on keeping interest rates high is actually driving up the cost of housing and credit-card debt for working Americans. What we can say with certainty is that the Fed’s current course of action is hurting poor Americans.  Because interest rates are so high and have remained high for so long, Casselman and Jeanna Smialek report for the New York Times, “More Americans are falling behind on payments on credit card and auto loans, even as many are taking on more debt than ever before.”

“Affluent households, and even many in the middle class, have largely been insulated from the effects of the Fed’s policies,” they explain. “For poorer families, it is different. They are likelier to carry a balance on credit cards, meaning they’re more likely to feel high rates. According to Fed data, about 56 percent of people earning less than $25,000 carried a credit card balance in 2022, compared with 38 percent of those earning more than $100,000.”  They conclude, “Black Americans…and Latinos are also more likely to carry balances.” And Emily Peck at Axios reports that credit card delinquencies are rising. 

“Though credit card balances overall fell slightly in the first quarter as Americans paid off their holiday spending, they're still 13% higher than last year,” Peck explains. “The average credit card charges a near-record 20.66% interest rate, per Bankrate. And 44% of borrowers carry a balance from month to month.”

Hilariously, Peck notes, “New York Fed officials said they weren't sure exactly why delinquency rates were rising.” Given that it’s coming from a branch of the organization that kicked off those record-high interest rates, the lack of self-awareness in that quote is truly staggering.

Is the South Gearing Up for Another Hot Labor Summer?

Last month, Tesla laid off all 500 or so workers on its Supercharger team—an especially shocking development since Tesla’s Supercharger system seemed to be one of the only departments in the company that had a rock-solid future ahead of it. Other EV manufacturers had adopted Tesla’s charging standard and were paying Tesla big money to access the Supercharger network, which makes up more than 60% of all EV-charging stations in the United States. 

This week, Tesla started to rehire those 500 laid off workers after Elon Musk announced that Tesla was devoting half a billion dollars to extending the supercharger network. (Inside reports published yesterday suggest that Musk fired the department in a fit of impulsive anger when the Supercharger head refused to lay off more than 20% of her workforce.) 

Hopefully, the first thing those rehired workers will do as soon as they walk back into the office is vote to form a union, because their company has already demonstrated that management can make some erratic decisions. As a counterexample, consider the unionized workers at the Mirage hotel and casino in Las Vegas, which is closing this summer. Some 3000 workers are being laid off when the casino closes, but the union negotiated an $80 million severance package that will give those workers some freedom to consider their next steps. 

Meanwhile, a new report from NELP explains that American warehouse workers are suffering from an injury crisis. “Nationally, the warehouse industry injury rate is twice that of the private-sector average for all industries and tens of thousands of warehouse workers each year experience serious injuries requiring medical treatment,” NELP reports. Because Amazon is the leading large-warehouse employer in the US, most of those injuries are happening in Amazon warehouses. (Amazon “accounts for 79 percent of employment and 86 percent of all injuries” in the large warehouse category.) But retailers Walmart and TJX also see high warehouse worker injury rates.

NELP suggests a number of policies that the federal government can adopt to help bring down the egregious number of warehouse injuries. Some of those policies include data transparency so that workers can see their own records and quotas, anti-retaliation laws that would protect workers from seeking recourse if they feel their employer is endangering them, and regulations encouraging ergonomic design for warehouse equipment. NELP also argues that unionization would help protect these workers.

Meanwhile, all the hard work done by unions during the Hot Labor Summers of last year and the year before continues to bear fruit. Lauren Kaori Gurley reports that Apple Store workers in Maryland who voted to unionize now could be the first Apple retail workers to go on strike, and the Wall Street Journal explains how unions took advantage of the weak economy in southern states to unionize southern auto manufacturing plants for the first time.  

Chandra Childers at the Economic Policy Institute further explains this dramatic shift in southern workplaces, using worker actions at Waffle House chain restaurants as an example. “The Southern economic development model is characterized by low wages, lax regulation of businesses, low corporate taxes, and a lack of safety net supports for workers and families,” she writes. “But perhaps most important of all, this model requires that workers are divided because when they come together across racial, gender, class, and other differences, they are empowered to demand change.”

“Fortunately, workers across the region are increasingly recognizing that they have the power to stop wealthy and powerful corporations from continuing to extract their labor without fair compensation and without regard for their well-being or that of their families and communities,” Childers continues. “The Waffle House strike is part of a much larger movement of service workers across the South–in Alabama, Georgia, North Carolina, and South Carolina–joining together as the Union of Southern Service Workers to demand change.” 

Homeowner Insurance Prices Are Spiking Nationwide

For the New York Times, Christopher Flavelle explains why climate change has caused homeowner insurance to spike in states around the country—even in states like Iowa that have traditionally been safe from climate disasters, but are now prone to damaging hail and wind storms. 

“In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013,” Flavelle writes. 

“The result is that insurance companies are raising premiums by as much as 50 percent or more, cutting back on coverage or leaving entire states altogether,” he continues. “Nationally, over the last decade, insurers paid out more in claims than they received in premiums, according to the ratings firm Moody’s, and those losses are increasing.”

It’s highly unlikely that states like Florida, California, and Louisiana will have fewer climate catastrophes in the future. And as we saw last year, the wildfires that choked western states for the last five years have begun to spread throughout the United States. It seems pretty obvious that the unfettered free market is not going to solve the homeowner insurance pricing crisis, so policy solutions will be necessary from our leaders to provide stability for homeowners in the future.

This Week in Middle Out

• “The Social Security Administration is set to implement new rules to make it easier for beneficiaries to access certain benefits and increase the payments some may receive,” reports CNBC. “With the change, more people may qualify for SSI, current beneficiaries may see higher payments and individuals who live in public-assistance households may have fewer reporting requirements.” 

• “Federal officials will provide up to $120 million in grants to Polar Semiconductor to help the company expand its chip manufacturing facility in Minnesota,” writes the New York Times’s Madeleine Ngo.

• And Keith Schneider explains how communities are banding together to find new ways to create affordable housing. In Michigan, a coffee shop owner convinced 1000 Traverse City residents to crowdfund a new building co-op. “The $20 million development, called Commongrounds, opened late last year. It is at full occupancy and consists of 18 income-based apartments (rent below market rate based on median income), five hotel-like rooms for short-term rentals, a restaurant, three commercial kitchens (for the restaurant and to be used for events and classes), a food market, a coffee training center (for new hires and developing new drinks), a 150-seat performing arts center, a co-working space, offices and a Montessori preschool.” It represents the latest in a wave of “community-owned cooperative real estate” projects unfolding in states from coast to coast.

Closing Thoughts

This week, the Biden Administration announced a series of strict tariffs on Chinese imports, including a one hundred percent tariff on Chinese electric vehicles.

Critics and pundits pointed out that President Donald Trump also levied harsh tariffs on China, and they accused Biden of flip-flopping on the issue. But in fact, the Biden Administration isn’t wallowing in anti-trade nationalism like the Trump Administration. 

I’m going to unpack the reasons why these two trade policies are vastly different below. But before we do that, let me define the distinction in a single sentence: There’s a clear difference between a flat 10% tariff levied against all imports from every nation, as Trump is proposing, and a strategic tariff on certain imports from one nation that threaten America’s green-energy transition, as President Biden just did. 

Let’s dig in a little further. Todd Tucker at the Roosevelt Institute explains that this move defends the hundreds of billions of dollars of investments in American semiconductor and green energy manufacturing that the Biden Administration made in the CHIPS and Science Act and the Inflation Reduction Act. This allows those American factories to come online, and those American manufacturing jobs to be created, without interference from artificially cheap Chinese products.

These increased tariffs are protecting those good-paying American jobs. Or as the director of Biden’s National Economic Council, Lael Brainard, told reporters this week: “We know China’s unfair practices have harmed communities in Michigan and Pennsylvania and around the country that are now having the opportunity to come back due to President Biden’s investment agenda.” 

Despite what trickle-down organizations and neoliberal economists might have you believe, the truth is that “free trade” across international borders is by no means a level playing field. Countries like China with strict top-down economic controls can strategically invest deeply in money-losing industries, pay workers poverty wages, and keep prices lower than costs for long periods of time in order to disrupt markets and shut down competitors. If you think of a Walmart moving in and cutting prices for tools far below what the independently owned hardware store on Main Street can afford, and then jacking prices back up when the hardware store inevitably closes, you have a pretty good idea of what China may be able to do in the global green-energy space.

But even more than that, China’s unsustainably low prices also threaten to undermine America’s burgeoning green economy—and by doing that, they are also threatening the future of our climate. The truth is that every nation needs to be doing more to reduce its own carbon footprint and grow its own green energy infrastructure. Tucker explains a little further at the Roosevelt Institute:

Climate change is a global problem, but its solution will necessarily come from national governments. This means that each country’s national strategy needs to keep domestic workers and industries “whole” during the green transition. That does not mean that there is not a considerable role for friendshoring, nearshoring, foreign direct investment, and even strategic trade with countries like China: Green industrial policy does not mean autarky (no trade), or anything close. Rather, inattention to these economic development and resilience needs (and lack of robust planning for meeting them) risks making climate commitments less credible. Moreover, reliance on a single source of supply (which China is currently in many supply chains) risks replicating the problems of the fossil fuel era, with economies depending on a few geopolitical hotspots. That is not good for energy price stability, the economy, or climate.

So the Biden Administration has done the right thing by curbing our reliance on Chinese green technology before it has a chance to take root. Now, it’s up for American industries to take advantage of this head start that the Biden Administration is offering. 

David Dayen at the American Prospect addresses the “persistent myth that U.S. EVs lose massive amounts of money, which is a fiction based on how companies account for R&D spending.” You occasionally hear auto executives complain that companies lose $100,000 per EV sold because rather than treating research and development in EV technology as an investment in the future, those executives consider the R&D solely as a loss on the balance sheet.

Dayen further explains that if American automakers internalize that myth they might backslide on EV adoption, which would basically result in Detroit losing the transition to EVs and eventually going extinct. Instead, “only accelerating the domestic ecosystem of lithium mines and battery plants and recycling centers needed to foster an EV sector will allow the auto industry to thrive here,” Dayen concludes. 

“That’s what will reduce the cost of assembly and spur innovation; we’re so early into the cycle of electric vehicles that there’s much more to come. Some company already with a foothold here is going to do it; if it’s not Ford and GM, it’ll be Hyundai or someone else, probably with union labor if the UAW has anything to say about it.”

The free-traders on the left and the right are arguing for a trickle-down, regulation-free global trade environment that’s really a race to the bottom, in which the nations with the fewest protections and the corporations with the lowest wages win. 

President Biden’s tariffs represent a middle-out approach to global trade, in which he puts American workers and consumers and their well-being at the center of policy, and promotes trade with other nations that agree to do the same. If every leader around the world followed those standards, workers around the world would enjoy an unprecedented level of prosperity.

Be kind. Be brave. Take good care of yourself and your loved ones.

Zach