Federal Regulators Finalize Rule to Cap Credit Card Late Fees at $8, Saving Families Billions
In a move to eliminate excessive fees and provide relief to struggling families, federal regulators have finalized a rule to cap most credit card late fees at $8. The new regulation, which was first proposed in February 2023, is estimated to save families over $10 billion annually by reducing fees from an average of $32. This rule applies to large credit card issuers with more than 1 million accounts, representing over 95% of total outstanding credit card debt.
The Biden administration has been actively addressing the high cost of living and aims to demonstrate its commitment to helping families. In addition to the credit card late fee cap, the Consumer Financial Protection Bureau (CFPB) also proposed a rule in January to curb excessive overdraft fees. These efforts come at a time when Americans are accumulating record levels of credit card debt, surpassing $1.1 trillion. The burden of this debt has been particularly challenging for Millennials and individuals with lower incomes, who have struggled to keep up with payments amid high inflation.
The implementation of the new rule will benefit more than 45 million people who are charged late fees on their credit cards each year. On average, these individuals will save $220 annually, providing much-needed financial relief. The rule aims to close a loophole that credit card companies have exploited since 2010, allowing them to increase fees on borrowers who make late payments.
CFPB Director Rohit Chopra expressed his satisfaction with the new rule, stating, “For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers… Today’s rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers to boost their own bottom lines.”
However, the financial industry has criticized the CFPB’s decision, arguing that it will ultimately harm consumers by leading to more late payments and damaging credit scores. Greg Baer, CEO of the Bank Policy Institute, accused the CFPB of prioritizing short-term political gain over long-term consumer benefits. The US Chamber of Commerce has even threatened to file a lawsuit against the CFPB to prevent the regulation from taking effect, claiming that it punishes responsible credit card users.
Despite the backlash, the CFPB remains committed to its decision. Sam Gilford, a CFPB spokesperson, highlighted the overwhelming positive response received from the public when the rule was initially proposed. Gilford stated, “Today’s rule closes a longstanding loophole abused by credit card giants to turn late fees into a major revenue stream.”
The new rule is set to take effect 60 days after its publication in the Federal Register, which is expected to occur in a few weeks. This expedited timeline has surprised analysts, who speculate that it may be an intentional strategy to expedite litigation. Jaret Seiberg, a financial services analyst at TD Cowen Washington Research Group, believes that if President Biden is reelected, a court battle over the credit card rule could reach the Supreme Court, where the CFPB may have an advantage.
Consumer advocates have praised the new credit card regulations as a means of assisting vulnerable families. Chuck Bell, advocacy program director at Consumer Reports, described the rule as reasonable and a way to make a real difference for individuals facing steep late fee penalties. Senator Elizabeth Warren also expressed her support for the rule, stating that it demonstrates government working for the people rather than serving the interests of big banks.
Later today, President Biden will convene his Competition Council to showcase the ban on excessive credit card late fees. The White House has indicated that the council will outline steps aimed at fighting corporate rip-offs. This initiative aligns with the administration’s commitment to addressing economic challenges faced by American families.
In conclusion, the finalized rule to cap credit card late fees at $8 is a significant step towards eliminating excessive fees and providing relief to struggling families. By saving families billions of dollars annually, this regulation aims to address the high cost of living and alleviate the burden of credit card debt. While facing criticism from the financial industry, the CFPB remains steadfast in its decision, emphasizing the positive impact it will have on consumers. As the rule prepares to take effect, it is expected to face legal challenges, potentially reaching the Supreme Court. Nonetheless, consumer advocates and politicians view this regulation as a positive step towards a fairer financial system that prioritizes the needs of working people over corporate interests.