The U.S. government has announced its plans to limit credit card late fees to $8, a move that is expected to face resistance from financial giants. The new regulations are part of the government’s efforts to promote competition and crack down on unfair pricing practices. President Biden has criticized rising costs faced by American families and sees these regulations as a way to address the issue.
Under the new rules, credit card issuers such as Bank of America, Capital One, Citibank, and JPMorgan Chase cannot charge more than $8 for a late payment unless they can provide data justifying higher fees. The Consumer Financial Protection Bureau (CFPB) aims to close a legal loophole that allowed some financial giants to charge an average of $32 per month for missed or late payments. This has been burdensome for cash-strapped cardholders while benefiting the credit card industry, which earned over $14 billion in revenue from late fees in 2022.
Rohit Chopra, the director of the CFPB, stated that the goal is to ensure consumers, small businesses, and workers receive fair treatment. The policy is expected to save cardholders approximately $10 billion annually, benefiting around 45 million people who have faced such fees. However, the fate of these regulations remains uncertain as the banking industry is likely to sue the CFPB. The agency is already facing legal challenges regarding its funding and regulatory powers in a separate case before the Supreme Court.
The announcement of the credit card late fee cap comes ahead of a meeting between President Biden and his top advisers on competition issues. The government plans to unveil additional actions to address “junk fees” in various sectors, including prescription drugs, groceries, housing, and financial services. These efforts align with Biden’s campaign to tackle the root causes of persistent inflation and ensure corporations do not take advantage of consumers.
Lael Brainard, the director of the White House National Economic Council, highlighted the need for more price transparency and criticized corporations for adding extra fees, hiding costs, and even breaking the law. These announcements set the stage for President Biden’s upcoming State of the Union address, where he is expected to emphasize the fight against hidden surcharges and unfair corporate practices.
However, progress in implementing these rules has been slow due to the federal rulemaking process and the challenges posed by a divided Congress. Lobbying opposition from airlines, cable giants, travel resorts, and ticket sellers has further delayed relief for struggling Americans. Nevertheless, Brainard stated that President Biden is determined to address these corporate practices and will continue to highlight them in his speech.
In addition to the credit card late fee cap, federal officials are set to unveil further regulatory actions targeting junk fees. The Federal Communications Commission plans to propose a ban on “bulk billing,” a practice that allows landlords to charge all tenants within a building for cable, internet, or satellite services, even if they don’t want to participate. The Agriculture Department intends to release final rules that aim to lower prices for farmers by targeting contracts in poultry pricing.
The CFPB’s focus on late fees primarily applies to the largest card issuers serving over 1 million customers. While the agency began its rulemaking process in 2023, it gained increased attention following Capital One’s announcement of its merger plans with Discover Financial Services. This merger could create the largest credit card issuer in the United States.
The new restrictions on late fees have received support from consumer advocacy groups such as Americans for Financial Reform, who believe it will save consumers billions of dollars each year. However, many banks and credit card issuers have opposed these regulations, arguing that capping penalty amounts would limit the perks they offer cardholders. Some industry groups have even suggested that they may sue the government over these rules.
Overall, the U.S. government’s decision to limit credit card late fees to $8 is part of a broader effort to promote competition and protect consumers from unfair pricing practices. While facing resistance from financial giants, these regulations aim to provide relief to cash-strapped cardholders and save them billions of dollars annually. The fate of these rules remains uncertain due to potential legal challenges, but the government is determined to address “junk fees” across various sectors and ensure corporations do not take advantage of consumers.
