Federal regulators finalized a rule on Tuesday to cap most credit card late fees at $8 as part of a broader push by the Biden administration to eliminate junk fees.
The Consumer Financial Protection Bureau estimates the new regulation, first proposed last summer, will save families more than $10 billion a year by cutting fees from an average of $32.
The new rule applies to large credit card issuers – those with more than 1 million accounts. These companies represent more than 95% of total outstanding credit card debt, according to the CFPB.
The new push to target credit card fees comes as the White House aims to show it is taking action to help families hurting from the high cost of living. The CFPB also proposed a rule in January that would curb excessive overdraft fees.
It also comes as Americans continue to pile on credit card debt, which recently exceeded a record $1.1 trillion. Some borrowers, especially Millennials and those with lower incomes, have been falling behind on their credit card debt following more than two years of high inflation.
More than 45 million people are charged late fees on credit cards each year, according to the CFPB. Those individuals will now save an average of $220 per year, regulators say.
The new rule aims to close a 2010 loophole the CFPB says has been “exploited” by credit card companies, allowing them to jack up fees on borrowers who made late payments.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in a statement. “Todays’ 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.”
The financial industry slammed the CFPB, warning the new regulation will hurt consumers by causing more people to pay late, damaging their credit scores.
“Today’s announcement is a prime example of how the CFPB has been politicized, and how its regulatory actions promote rhetoric over analysis and data,” Greg Baer, CEO of the Bank Policy Institute, a bank trade group, said in a statement. He added that the CFPB puts “perceived short-term political gain over long-term benefits of consumers.”
The ban on excessive credit card late fees is expected to be showcased by the White House later on Tuesday when President Joe Biden convenes his Competition Council. The White House said the council will detail steps aimed at “fighting corporate rip-offs.”
Some consumer advocates are praising the new credit card regulations as a way to help vulnerable families.
“It’s simply unfair to impose a steep late fee penalty that far exceeds the credit card company’s costs, especially when someone is just a few hours or a couple of days late making their payment,” Chuck Bell, advocacy program director at Consumer Reports, said in a statement. He described the new rule as “reasonable” and a way to make a “real difference.”
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