The Consumer Financial Protection Bureau recently announced a new rule that would limit the amount banks can charge customers for late fees to $8 per incident. This significant change would reduce the typical late fee, which currently averages around $32, to a much lower amount. According to the CFPB, this adjustment would result in substantial savings for more than 45 million credit card users, with an average annual savings of $220 per individual.
The new rule comes after a thorough review of market data related to the 2009 Card Act, which granted card issuers the ability to impose escalating late fees on customers. CFPB Director Rohit Chopra emphasized the detrimental effects of credit card companies exploiting a loophole to collect excessive fees from consumers. He stated that the rule aims to put an end to this practice and prevent credit card giants from profiting at the expense of borrowers.
This latest development reflects President Joe Biden’s ongoing campaign against what he refers to as “junk fees.” The CFPB revealed that major banks issuing credit cards have been steadily increasing late penalties since 2010, resulting in a staggering $14 billion in fees by 2022. Chopra highlighted the burden placed on customers with low credit scores, who face an average annual late fee of $138 per card. The new rule targets card issuers with a minimum of one million open accounts and eliminates automatic inflation adjustments on late fees.
Despite the CFPB’s intentions to protect consumers, industry groups have raised concerns about the potential consequences of the new rule. One industry association criticized the rule, suggesting that it could lead to higher interest rates and diminished credit availability for card users. The group also questioned the transparency and legality of the rule-making process, claiming that it prioritizes headlines over proper procedures.
Following the announcement of the rule, Republican Senator Tim Scott of South Carolina expressed opposition and vowed to challenge the implementation of the late fee cap. He indicated that he would utilize the Congressional Review Act to contest the rule and potentially reverse its effects. Additionally, the American Bankers Association is exploring options to push back against the CFPB’s regulatory measures, signaling potential conflicts between policymakers and financial institutions.
The Consumer Financial Protection Bureau’s new rule on late fees represents a significant shift in how credit card issuers can charge customers for overdue payments. While the rule aims to benefit consumers by reducing fees and preventing abusive practices by banks, it has also sparked debates and criticisms from industry stakeholders. As the rule prepares to take effect, it remains to be seen how the financial landscape will adapt to these changes and whether further adjustments will be necessary to address concerns raised by various parties.