The Biden administration has proposed a new rule cracking down on late fees from credit card issuers.
The Consumer Financial Protection Bureau on Wednesday announced a proposal to limit late fees to $8, which would apply to any missed payment. To charge higher fees, credit card companies would have to prove they were required to cover collection costs.
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The proposed rule also would eliminate the automatic annual inflation adjustment. Instead, the CFPB would examine market conditions and make any adjustments as necessary.
Finally, the CFPB aims to cap late fees at 25% of the required minimum payment. It would not allow, for instance, companies to assess a fee that is 100% of the minimum payment owed.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” CFPB Director Rohit Chopra said. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
The agency argued that “excessive” credit card fees cost the public some $12 billion each year.
In a news release, the CFPB said that currently even if someone misses a deadline by a matter of mere hours, he or she can be assessed an “exorbitant” late fee that outpaces the credit card company’s costs to collect late payments. Companies charge as much as $41 for each missed payment, according to the agency.
Wednesday’s action was portended by a report issued by the CFPB in March that emphasized that the $12 billion in late fees charged in 2020 hurt millions of families, particularly those with subprime accounts. The CFPB was created by the 2010 Dodd-Frank financial reform law and is the brainchild of Sen. Elizabeth Warren (D-MA), to whom Chopra is considered a close ally.
A spokesman for the American Bankers Association told the Washington Examiner at the time that the report is “yet another example of the CFPB criticizing the financial services industry for following the very rules the bureau sets.”
“Left out of this report is any mention of the millions of consumers who value and appreciate the safety and convenience provided by the credit cards they use every day, as well as the wide array of options they have to choose from when they pick a credit card,” the spokesman said.
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This time last year, the CFPB asked consumers for input about fees that they don’t think are fair. It was specifically targeting fees that are not included in the advertised price of a transaction, for example, when people are charged “resort fees” or “service fees” after the fact.
“Many financial institutions obscure the true price of their services by luring customers with enticing offers and then charging excessive junk fees,” Chopra said. “By promoting competition and ridding the market of illegal practices, we hope to save Americans billions.”
