Credit card late fees capped at $8 as part of Biden crackdown on junk fees
By Matt Egan, CNN
New York (CNN) — Federal regulators finalized a rule on Tuesday to cap most credit card late fees at $8 as part of a broader push by the Biden administration to eliminate junk fees.
The Consumer Financial Protection Bureau estimates the new regulation, first proposed in February 2023, will save families more than $10 billion a year by cutting fees from an average of $32.
The new rule applies to large credit card issuers – those with more than 1 million accounts. These companies represent more than 95% of total outstanding credit card debt, according to the CFPB.
The new push to target credit card fees comes as the White House aims to show it is taking action to help families hurting from the high cost of living. The CFPB also proposed a rule in January that would curb excessive overdraft fees.
It also comes as Americans continue to pile on credit card debt, which recently exceeded a record $1.1 trillion. Some borrowers, especially Millennials and those with lower incomes, have been falling behind on their credit card debt following more than two years of high inflation.
More than 45 million people are charged late fees on credit cards each year, according to the CFPB. Those individuals will now save an average of $220 per year, regulators say.
The new rule aims to close a 2010 loophole the CFPB says has been “exploited” by credit card companies, allowing them to jack up fees on borrowers who made late payments.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in a statement. “Todays’ rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers to boost their own bottom lines.”
The financial industry slammed the CFPB, warning the new regulation will hurt consumers by causing more people to pay late, damaging their credit scores.
“Today’s announcement is a prime example of how the CFPB has been politicized, and how its regulatory actions promote rhetoric over analysis and data,” Greg Baer, CEO of the Bank Policy Institute, a bank trade group, said in a statement. He added that the CFPB puts “perceived short-term political gain over long-term benefits of consumers.”
Chamber of Commerce vows to fight
The US Chamber of Commerce went a step further, saying it will “imminently” file a lawsuit against the CFPB to prevent the “misguided and harmful” regulation from taking effect.
“Once again, the Consumer Financial Protection Bureau has exceeded its authority,” Neil Bradley, chief policy officer at the Chamber, said in a statement. “The agency’s final credit card late fee rule punishes Americans who pay their credit card bill on time by forcing them to pay for those who don’t.”
The CFPB declined to comment on the threatened lawsuit from the Chamber.
However, Sam Gilford, a CFPB spokesperson, told CNN that when the rule was first proposed last year the agency received thousands of “overwhelmingly” positive comments from the public. “Today’s rule closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream,” Gilford said.
The CFPB said in its statement that the new rule will take effect 60 days after it’s published in the Federal Register. The CFPB spokesperson told CNN that the agency expects to publish the rule in the Federal Register in a few weeks. That puts the rule on track to take effect June 1.
Analysts were surprised by the speedy plans from regulators to implement the brand-new rule.
“This is a few months faster than we expected. We believe it is intended to expedite litigation,” Jaret Seiberg, financial services analyst at TD Cowen Washington Research Group, said in a note to clients.
If Biden wins reelection, Seiberg said a court fight over the credit card rule could eventually reach the Supreme Court, where he believes the CFPB “has an edge.”
Ed Mills, Washington policy analyst at Raymond James, said the way the CFPB designed the rule has eliminated “several strong potential legal arguments” the industry could have used to fight it.
“We are overall skeptical that the industry will be successful in overturning the rule,” Mills said in a note to clients.
‘Government working for the people’
The ban on excessive credit card late fees is expected to be showcased by the White House later on Tuesday when President Joe Biden convenes his Competition Council. The White House said the council will detail steps aimed at “fighting corporate rip-offs.”
Some consumer advocates are praising the new credit card regulations as a way to help vulnerable families.
“It’s simply unfair to impose a steep late fee penalty that far exceeds the credit card company’s costs, especially when someone is just a few hours or a couple of days late making their payment,” Chuck Bell, advocacy program director at Consumer Reports, said in a statement. He described the new rule as “reasonable” and a way to make a “real difference.”
Sen. Elizabeth Warren, a Democrat from Massachusetts, cheered the move from the CFPB.
“These junk fees are designed to boost Wall Street profits at the expense of working people,” Warren said in a post on X. “This is government working for the people, not the big banks.”
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