Biden Administration Announces Rule to Cap Credit Card Late Fees, Saving Americans Billions
In a recent announcement, the Biden administration revealed its plans to implement a rule that would cap credit card late fees. This move is part of the administration’s broader efforts to eliminate what they refer to as “junk fees” and aims to save Americans up to $10 billion annually. The Consumer Financial Protection Bureau (CFPB) will be responsible for enforcing these new regulations, which will set a maximum limit of $8 for most credit card late fees. If banks wish to charge more than $8, they will need to provide a valid reason for doing so. This rule is expected to significantly reduce the average credit card late fee, which currently stands at $32. According to the CFPB, banks generate approximately $14 billion in credit card late fees each year.
Rohit Chopra, the director of the CFPB, emphasized the prevalence of junk fees in various sectors of the economy, including credit cards. He stated, “In credit cards, like so many corners of the economy today, consumers are beset by junk fees and forced to navigate a market dominated by relatively few, powerful players who control the market.” This rule is part of President Joe Biden’s broader agenda to reduce costs for Americans. During a meeting of his competition council, President Biden planned to highlight this proposal along with other initiatives aimed at addressing illegal and unfair pricing in areas such as groceries, prescription drugs, healthcare, housing, and financial services.
To further support their efforts, the Biden administration is forming a strike force led by the Justice Department and the Federal Trade Commission. This strike force will focus on cracking down on illegal and unfair pricing practices across various sectors. The White House has positioned the White House Competition Council as a means to promote competition within the U.S. economy and save consumers money.
According to an analysis conducted by the White House Council of Economic Advisers, the Biden administration’s overall efforts are projected to eliminate $20 billion in annual junk fees. The analysis revealed that consumers currently pay around $90 billion per year in junk fees, including fees related to concerts, apartment rentals, and auto dealerships.
However, despite these efforts, President Biden’s economic leadership has not received widespread approval. A recent survey conducted by The Associated Press-NORC Center for Public Affairs Research indicated that only 34% of U.S. adults approve of Biden’s economic leadership. This lack of support could potentially impact the upcoming presidential election.
The credit card industry has experienced significant growth, with Americans holding over $1.05 trillion on their credit cards in the third quarter of 2023. This figure is expected to increase once the fourth-quarter data is released. Additionally, more Americans are falling behind on their credit card debts, leading to concerns about excessive debt burdens, particularly among lower-income households affected by inflation.
Major credit card issuers, including American Express, JPMorgan Chase, Citigroup, Capital One, and Discover, have seen an upward trend in delinquency rates over several quarters. Silvio Tavares, president and CEO of VantageScore, one of the country’s major credit scoring systems, expressed concern about signs of stress within the consumer credit market. While he acknowledged that consumers are generally credit healthy, he highlighted the need to address emerging challenges.
The growth of the credit card industry played a role in Capital One’s recent announcement of its acquisition of Discover Financial for $35 billion. Both companies are among the largest credit card issuers and have a significant customer base that carries balances on their accounts.
This is not the first time policymakers have addressed credit card fees. In 2010, Congress passed the CARD Act, which prohibited excessive penalty fees and introduced clearer disclosures and consumer protections. The Federal Reserve also implemented a rule in 2010 that capped the first credit card late fee at $25 and subsequent late payments at $35, with adjustments tied to inflation. The CFPB, which assumed regulatory authority over the credit card industry from the Fed, is now proposing further measures to limit fees. Their proposal is similar to the one announced in January, which aimed to cap overdraft fees at $3. Banks will be required to accept the bureau’s benchmark or provide justifications for charging higher fees.
President Biden has made the elimination of junk fees a key focus of his administration’s economic agenda leading up to the 2024 election. The fees charged by banks have been a central theme in his campaign, and the White House has directed government regulators to take necessary actions to curtail these practices. In another noteworthy move, the Agriculture Department has finalized a rule to address deceptive contracts by meat processors and to prevent retaliation against small farmers and ranchers working together in associations.
As the Biden administration continues its efforts to reduce costs for Americans and promote greater competition, the impact of these policies on the economy and public perception remains to be seen.