In a move aimed at curbing excessive fees and providing relief to American consumers, federal regulators have finalized a rule to cap most credit card late fees at $8. The regulation, announced on Tuesday, forms part of the Biden administration’s broader efforts to eliminate what it terms as “junk fees” in the financial sector.
According to estimates by the Consumer Financial Protection Bureau (CFPB), the new rule, which was first proposed in February 2023, is projected to save families over $10 billion annually by reducing fees from an average of $32.
The rule targets large credit card issuers, defined as those with more than 1 million accounts, which collectively represent over 95% of total outstanding credit card debt in the country, as per the CFPB.
The decision to tackle credit card fees aligns with the Biden administration’s agenda to address the financial burdens faced by American families amidst rising living costs. The CFPB had previously proposed a rule in January to address excessive overdraft fees.
The timing of the new regulation coincides with a concerning trend of increasing credit card debt among Americans, which recently surpassed a record $1.1 trillion. Millennials and individuals with lower incomes have been particularly affected, struggling to keep up with payments amid sustained inflation.
More than 45 million people are subjected to late fees on credit cards each year, according to the CFPB. The implementation of the new rule is expected to result in average savings of $220 per year for affected individuals.
The regulation aims to close a loophole exploited by credit card companies since 2010, allowing them to impose inflated fees on borrowers who make late payments.
In response to the announcement, CFPB Director Rohit Chopra emphasized the significance of ending what he termed as a decade-long exploitation of consumers by credit card giants. However, the financial industry has criticized the regulation, warning of potential adverse effects on consumers, including an increase in late payments and damage to credit scores.
The US Chamber of Commerce has announced its intention to challenge the regulation through legal action, describing it as “misguided and harmful.” Despite industry opposition, the CFPB remains firm in its commitment to implementing the new rule.
The regulation is set to take effect 60 days after its publication in the Federal Register, with an expected implementation date of June 1. Analysts anticipate potential legal battles over the rule, with implications that could extend to the Supreme Court.
The Biden administration is expected to highlight the ban on excessive credit card late fees during a meeting of the Competition Council later on Tuesday, emphasizing its commitment to combating corporate abuses and protecting consumer interests.
Consumer advocates have welcomed the new regulation as a step towards providing relief to vulnerable families, describing it as a fair measure to alleviate financial burdens and promote consumer rights. Democratic Senator Elizabeth Warren hailed the move as an example of government working in favor of the people, rather than corporate interests.
