The Biden Administration has implemented a new rule that caps credit card late fees at $8, a move that has sparked backlash from the banking industry. The rule, finalized by the Consumer Financial Protection Bureau (CFPB), will apply to the country’s largest credit card issuers with more than 1 million open accounts. While the CFPB estimates that this regulation will save American families over $10 billion in late fees annually, critics argue that it will have negative consequences for consumers.
American Bankers Association President and CEO Rob Nichols expressed concern about the rule, stating that it would reduce competition, increase the cost of credit, and lead to more late payments, higher debt, lower credit scores, and reduced credit access for those who need it most. He urged that the rule should not be allowed to go into effect.
The crackdown on late fees is part of a broader initiative by the Biden administration to limit hidden surcharges known as “junk fees.” Earlier this year, federal regulators proposed cutting overdraft fees charged by banks. However, major financial institutions and legislators have criticized the new rule, warning that it could harm consumers by reducing competition, increasing the cost of credit, and limiting credit access for those who need it most.
Ranking Senator Tim Scott announced plans to fight the implementation of the rule, arguing that while lowering the cap on late penalties may sound good in theory, it would decrease the availability of credit card products for those who need them most and raise rates for borrowers who pay on time. He believes that lawful and contractually agreed-upon payment incentives promote financial discipline and responsibility.
The Consumer Bankers Association (CBA), representing major retail banks such as Bank of America, Capital One, Citigroup, Wells Fargo, and JPMorgan Chase, also criticized the new rule. CBA President and CEO Lindsey Johnson stated that the rule’s policy goals are more focused on consumer redistribution than consumer protection. She expressed concern that the rule would increase costs among the majority of cardholders who pay their bills on time to benefit a small minority of frequent late-payers.
While the Biden administration presents this rule as a win for consumers, critics argue that it will have unintended consequences and negatively impact consumers’ long-term financial health. The banking industry and legislators are determined to fight the implementation of this rule, using the Congressional Review Act process to challenge its validity.
In conclusion, the Biden administration’s new rule to cap credit card late fees at $8 has sparked backlash from the banking industry. While the administration argues that it will save American families billions of dollars in late fees, critics warn that it will reduce competition, increase the cost of credit, and limit credit access for those who need it most. The battle between regulators and financial institutions is set to continue as both sides argue over the impact of this rule on consumers.