Credit Card Late Fees Would Drop Under New Biden Administration Rule

The Biden administration is making an attempt to rein in what it says are unnecessarily excessive bank card late charges, putting in a brand new client safety rule it says will decrease them.

“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” Rohit Chopra, director of the Consumer Financial Protection Bureau mentioned Tuesday.

“Today’s rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines.”

The transfer is a part of a slate of measures unveiled Tuesday by regulators and businesses meant to indicate the Biden administration is making an attempt to spice up competitors and produce down prices to shoppers as many citizens are nonetheless chafing from the consequences of costs will increase in 2022 and 2023.

Those different strikes embrace a proposal by Federal Communications Commission Chairwoman Jessica Rosenworcel to restrict bulk billing of broadband providers in multi-household buildings, reminiscent of rental and house complexes, and a transfer by the Agriculture Department to spice up competitors for processing in livestock and poultry markets.

But the CFPB rule, to be formally printed Tuesday, might get essentially the most discover. The bureau mentioned banks collected greater than $14 billion in late funds in 2022 and that these charges made up greater than 10% of all of the charges and curiosity banks charged prospects.

A 2009 legislation was meant to restrict late charges to not more than the quantity wanted to truly get better late funds. But in implementing the legislation, the Federal Reserve offered an exception for banks that charged not more than $25 for the primary late fee and $35 for subsequent ones, and it allowed these quantities to rise with inflation.

The common price is now $32, mentioned the CFPB, which is now in control of implementing the 2009 legislation. Its new rule would carry that right down to $8, saving an estimated $220 yearly for the 45 million individuals who pay late charges.

Though charges have lengthy been a gradual supply of revenue for banks, they’re in good monetary form and should not really feel a lot of an impact from the change. The Federal Deposit Insurance Corp. mentioned in November that U.S. banks made $68.4 billion in earnings within the third quarter of 2023, down barely from the quarter earlier than.

Still, main banking commerce teams — the American Bankers Association, the Consumer Bankers Association and the National Association of Federally-Insured Credit Unions — warned in 2023 that the change would imply extra debtors would pay late as a result of the charges wouldn’t deter them and would subsequently see their creditworthiness undergo.

The CFPB mentioned its proposal would solely cowl issuers with greater than 1 million open accounts and wouldn’t have an effect on the power to lift rates of interest on late payers, minimize credit score strains or take different actions to encourage well timed fee.

“In fact, the rule would increase the desire for credit card companies to facilitate on-time payment, since it would lower incentives to build a business model on late fees,” the company mentioned.