The Biden administration announced a rule Tuesday that would cap all credit card late fees. It’s the White House’s latest effort to eliminate so-called junk fees, which regulators say could save Americans up to $10 billion a year.
New regulations from the Consumer Financial Protection Bureau would cap most credit card late fees at $8 or require banks to show why they charge more than $8.
The rule would reduce the average late payment fee for credit cards from $32.
The bureau estimates that banks generate about $14 billion in credit card late fees annually.
“In the credit card industry, as in many other areas of today’s economy, consumers are plagued by junk fees and difficulty navigating a market dominated by a relatively small number of powerful players. “We are forced to do so,” said Rohit Chopra, director of the department. statement.
President Biden was scheduled to highlight the proposal at Tuesday’s Competition Council meeting, along with other efforts to lower costs for Americans.
The Democratic president is assembling a new strike force to crack down on illegal and unfair price fixing on groceries, prescription drugs, health care, housing, financial services and more.
The strike force will be led by the Justice Department and the Federal Trade Commission, according to a White House statement.
The Biden administration has portrayed the White House Competition Council as a way to save people money and foster greater competition within the U.S. economy.
The White House Council of Economic Advisers produced an analysis showing that the Biden administration’s overall efforts would reduce junk fees by $20 billion annually.
The analysis found that consumers pay about $90 billion a year in junk fees such as concerts, apartment rentals and car dealerships.
The effort appears to have done little to help Biden politically ahead of this year’s presidential election.
A new poll from The Associated Press-NORC Center for Public Affairs Research finds that only 34% of American adults approve of Biden’s economic leadership.
Sen. Tim Scott (R-S.C.) criticized the CFPB’s cap on credit card late fees, saying consumers would ultimately face greater costs due to higher interest rates and reduced access to credit. He said he would.
“It will reduce the availability of credit card products to those who need them most, increase interest rates for many borrowers who carry balances but pay on time, and increase the likelihood of late payments overall,” Scott said. Ta.
In the third quarter of 2023, Americans held more than $1.5 trillion in credit cards, a record number, and this number is expected to increase in the third quarter of 2023. It’s certain. 4th quarter data The announcement will be made by the Federal Deposit Insurance Corporation next month.
Those balances are now accruing interest, the highest amount since the Federal Reserve began tracking the data in the mid-1990s.
Additionally, more Americans are falling behind on their credit card debt.
Delinquency rates at major credit card issuers, including American Express, JPMorgan Chase, Citigroup, Capital One and Discover, have been trending upward in recent quarters.
Some analysts worry that Americans, especially poor households hit hard by inflation, are taking on too much debt.
“Overall, consumer credit is healthy. But the reality is that we are starting to see significant signs of stress,” says VantageScore, one of the country’s two major credit scoring systems. ‘s President and CEO Silvio Tavares said in an interview last month.
Growth in the credit card industry is also part of the reason Capital One announced last month that it would acquire Discover Financial for $35 billion.
These two largest credit card issuers are also the two companies where customers regularly carry balances in their accounts.
This is not the first time policymakers have considered credit card fees.
Congress passed the CARD Act in 2010, prohibiting credit card companies from charging excessive penalties and establishing clearer disclosures and consumer protections.
In 2010, the Fed issued rules that capped credit card late payment fees at $25 for the first time and $35 for subsequent late payments, and indexed the fees to inflation.
The CFPB, which took over credit card industry regulation from the Fed after its establishment, is proposing regulations that go even further than the Fed.
The department’s proposal is similar in structure to the one the department announced when it proposed in January. Setting limits on overdraft fees As low as $3.
The proposed rules would require banks to accept the agency’s benchmarks or show regulators why they should impose additional fees, an approach few banking industry executives expect to take.
made by biden Abolition of junk fees This is one of the cornerstones of the administration’s economic policy ahead of the 2024 elections.
The fees banks charge customers have been a centerpiece of that campaign, with the White House last year directing government regulators to do whatever they can to further reduce the practice.
In another move noted by the White House, the USDA finalized rules to block what it considers deceptive contracts by meat processors and prohibit retaliation against small farmers and ranchers who work together in unions. announced.
