The Consumer Financial Protection Bureau (CFPB) has introduced a new rule that will limit the late fees charged by banks to credit card users to $8 per incident. This move aims to provide relief to millions of Americans who have been burdened by high late fees for years. By reducing late fees from an average of $32 to $8, the CFPB estimates that more than 45 million card users will save an average of $220 annually.
This new rule comes after the CFPB reviewed market data related to the 2009 Card Act, which granted card issuers the authority to charge increasing amounts of late fees. Over the past decade, credit card companies have taken advantage of this loophole and generated billions of dollars in what CFPB Director Rohit Chopra refers to as “junk fees.” He believes that today’s rule puts an end to this practice and holds credit card giants accountable for their actions.
President Joe Biden has been vocal about his opposition to excessive fees charged by banks, and this latest move is part of his administration’s efforts to combat so-called junk fees. The CFPB reveals that the big banks issuing credit cards have been steadily increasing late penalties since 2010, resulting in over $14 billion in fees in 2022 alone. These fees primarily affect customers with low credit scores, who accumulate an average of $138 in late fees per card each year.
The new rule applies to card issuers with at least one million open accounts and also eliminates automatic inflation adjustments on late fees. Instead, the CFPB will adjust the fee if necessary to cover collection costs. However, card issuers can charge higher fees if they can demonstrate their necessity. It’s important to note that this rule does not directly impact interest rates.
While the CFPB’s rule has been welcomed by consumer advocates, it has faced criticism from industry groups. Some argue that this rule may lead to higher interest rates and reduced credit availability for card users. The Consumer Bankers Association has expressed concerns about the CFPB’s rushed process in issuing the rule, suggesting that it prioritizes headlines over legal process. The American Bankers Association is also considering options to push back against the rule.
Despite the opposition, the CFPB asserts that it has the authority granted by Congress to administer the Card Act, which includes implementing this late fee cap. Republican Senator Tim Scott of South Carolina has vowed to fight against the rule’s implementation by leveraging the Congressional Review Act.
The new rule will go into effect 60 days after its publication in the Federal Register, providing relief to millions of Americans struggling with high late fees on their credit cards. This is a significant step towards protecting consumers and holding credit card companies accountable for their practices. The CFPB’s efforts align with President Biden’s commitment to fostering a fair and transparent financial system for all Americans.
