President Joe Biden has announced a new effort to reduce credit card late fees, a move that is estimated to save American families $10 billion annually. The Consumer Financial Protection Bureau (CFPB) finalized a rule that will cut the typical credit card late fee from $32 to $8. This change is expected to result in an average savings of $220 per year for more than 45 million Americans who typically pay late fees.
During a meeting with his Competition Council, President Biden emphasized the significance of this rule in providing financial relief to millions of Americans. He criticized banks for generating five times more in late fees than it costs to collect late payments, stating that they are padding their profit margins. The CFPB Director, Rohit Chopra, also expressed his support for the rule, stating that it puts an end to credit card companies using inflation as an excuse to hike fees and increase their own profits.
The new rule closes a loophole in the federal law known as the CARD Act, which allowed major credit card issuers to charge growing fees to customers who were late on their payments. Over time, these late charges could reach as high as $41. The rule will now cap late fees at $8 and prevent card issuers from automatically increasing fees based on inflation.
However, industry groups representing big banks and credit card issuers have opposed the rule, arguing that it may force them to raise interest rates for consumers. The Consumer Bankers Association stated that the rule’s policy goals are focused on consumer redistribution rather than consumer protection. Similarly, the American Bankers Association expressed concerns about reduced competition, increased credit costs, and negative impacts on credit access and scores.
Despite these objections, the CFPB’s rule is expected to take effect in mid-May. It will apply to issuers with more than 1 million open accounts. President Biden highlighted this rule along with other actions his administration is taking to lower costs and promote economic policies that benefit Americans. A report from the Council of Economic Advisers estimates that the administration’s actions on “junk fees” alone will save Americans over $20 billion annually.
In addition to the credit card late fee rule, President Biden announced the launch of a new “Strike Force” aimed at cracking down on unfair and illegal practices that drive up prices. This task force will target behavior in areas such as prescription drugs, healthcare, food and grocery, housing, and financial services. The Competition Council also announced efforts to protect farmers and ranchers and promote competitive agricultural markets by going after poultry and meat processors.
Another area of focus for the administration is “bulk billing” by internet providers. They highlighted a proposed rule by the Federal Communications Commission that would ban the practice of landlords charging everyone in a building for a particular internet, cable, or satellite service, even if they haven’t opted in or don’t want it.
President Biden’s decision to highlight these efforts to save Americans money comes just days before his State of the Union address, where he is expected to outline the work his administration has done to lower everyday costs for Americans. With these initiatives, President Biden aims to alleviate financial burdens on American families and promote a more equitable and consumer-friendly financial system.
