Consumer Financial Protection Bureau Director Rohit Chopra on Tuesday defended the agency’s proposal to lower credit card late fees against criticism from Republicans at a Senate Banking hearing.

Republicans criticized the proposal, saying credit card issuers would find other ways to recoup the cost of late payments that would make loans more expensive or elusive for low- and middle-income borrowers.

“There is no free lunch,” said Banking ranking member Tim Scott, R-S.C. “You can’t just take away a fee and assume that it’s gone. You have to understand that taking away the fee only means that you’re going to paint it into the overall structure and cost associated with that institution.”

Credit card late fees are required by law to be “reasonable and proportional” to the cost the companies incur to collect the debt. The Federal Reserve established a threshold at which late fees would be assumed to meet the requirements of the law. 

The CFPB’s February proposal would lower that threshold from $30 for the first late payment and $41 for subsequent late payments to $8. The agency estimated the change would save consumers $9 billion each year. 

Chopra defended the proposal, saying that institutions would be able to charge more than $8 if they can show the cost to collect the overdue debt is higher than that.

“It’s not an end to late fees,” he said. “The rule just lowers the maximum amount the credit card companies can charge while getting automatic immunity from enforcement actions, and that dollar figure right now is proposed at $8.”

Sen. Elizabeth Warren, D-Mass., came to Chopra’s defense, saying the fees make up a relatively small revenue stream for credit card issuers.

“When I asked the biggest credit card issuers for this information, their response was that it was less than 1 percent,” she said. “So if there’s an $8 cap on credit card late fees — unless the banks can show that their costs are higher, in which case they can charge more — all that will happen, as best I can tell, is that the banks will have slightly lower profit margins.”

Democrats, meanwhile, pressed Chopra on the consequences if the Supreme Court upholds a Fifth Circuit Appeals Court decision in October that found the CFPB’s funding structure is unconstitutional. 

Depending on how the justices handle the decision, it could throw the agency’s rulemaking, such as the credit card late fee limit proposal and dozens of other rules, into question. 

The agency is funded through the Federal Reserve, rather than congressional appropriations. Republicans have criticized the funding structure, saying it has made the CFPB too powerful. 

If the Supreme Court undermines the CFPB’s regulations, it will “create major uncertainty in our mortgage markets,” Chopra said. 

“It will be difficult for lenders to know what the rules of the road are, and borrowers may not have the clear responsibilities and rights to safeguard them,” he said.

Sen. Mark Warner, D-Va., agreed, saying the result would be “chaos.”

Senate Banking Chairman Sherrod Brown, D-Ohio, criticized the appeals court decision, saying upholding it would undermine not only the CFPB and its regulations, but also other financial and banking regulators that are funded independent of the congressional appropriations process. 

“If the CFPB’s independent funding structure is unconstitutional, there’s going to be far-reaching collateral damage. The Fed would be in jeopardy. So would the FDIC,” Brown said, referring to the Federal Deposit Insurance Corporation. “These are entities vital to our economy — and to how corporations operate.” 

Republicans countered that the CFPB’s funding structure made the agency’s unanswerable to Congress. 

“It is not accountable to Congress or the American taxpayer through the appropriations process, and it routinely and brazenly acts outside of the scope of its authority,” Scott said.

The high court is expected to hear oral arguments on the matter when its new term begins in October.