Biden admin cements new rule to limit credit card late fees

The Consumer Financial Protection Bureau (CFPB) on Tuesday finalized rules limiting late payment fees charged by credit card companies. The bureau says this will reduce regular fees by 75%, saving U.S. consumers an average of $220 a year.

The consumer watchdog agency estimates the rule would save Americans more than $10 billion in late fees each year, lowering the standard fee from $32 to $8.

The White House touted the new rules as part of the Biden administration’s broader effort to crack down on “junk fees,” which are various types of fees that the financial industry charges consumers.

“This action builds on steps the CFPB has already taken to crack down on junk fees in the banking industry, including basic customer service fees, and efforts to curb overdraft fees and bounced check fees,” the White House said Tuesday. This is taken into consideration.”

Republicans opposed the new rules, arguing that the fees would help discipline consumers.

“Lawful and contractually agreed payment incentives promote financial discipline and responsibility,” Senate Banking Committee Ranking Member Tim Scott, R.S.C., said in a statement.

Scott, a former 2024 Republican presidential candidate, said he would use the Congressional Review Act process to block the rule, which is scheduled to go into effect within 60 days.

While consumer advocacy groups have praised the lower credit card fee caps, some industry groups have opposed them.

“Credit card companies collect billions of dollars in excessive late fees each year at the expense of economically vulnerable families,” Chuck Bell, advocacy director at the nonprofit Consumer Reports, said in a statement. “I am doing so,” he said.

“The people who bear the greatest financial burden from late fees are people living paycheck to paycheck, low-income and moderate-income consumers, and people of color.”

Bank and corporate lobbies are adamantly opposed to changing the rules. Industry groups such as the U.S. Chamber of Commerce, the American Bankers Association (ABA), and the Bank Policy Institute (BPI) voiced opposition to the rule change.

The ABA said this could result in “increased payment delays, increased debt, lower credit scores, and reduced credit access.”

Analysts focused on the political aspects of the rule change, which comes just days before the president’s annual State of the Union address.

“This increasingly political rule will almost certainly be mentioned in the President’s State of the Union.” A White House announcement said the rule would be set out in the context of “junk fees” and “corporate rip-offs.” has been done. This is frustrating card issuers to no end,” Ian Katz, director of research and consulting firm Capital Alpha Partners in Washington, said in an analysis.

The move follows the announcement of a White House “strike force” to limit price gouging, which has contributed to rising inflation following the pandemic.

National Economic Advisor Lael Brainard told reporters on Monday that some businesses are not passing on savings to consumers because wholesale prices have fallen. Instead, she says, they charge extra fees, hide costs and sometimes violate the law.

The CFPB found that credit card fees have increased since 2009, when credit card laws were overhauled with the CARD Act. Credit card companies charged consumers a record $130 billion in interest and fees in 2022, according to a CFPB study.

“Since the passage of the CARD Act, average late fees for major issuers have risen steadily, rising from $23 at the end of 2010 to $32 in 2022. Late fees are a major driver of the profit model,” the CFPB said on Tuesday.