Continuing its efforts to eliminate so-called junk fees, the U.S. government announced that it would limit the fees that credit card companies can charge customers for late or missed payments, The Washington Post reported.
The rule finalized by the Consumer Financial Protection Bureau (CFPB) closed a legal loophole that allowed credit card companies to charge an average of $32 per month for a missed or late payment, capping that fee at $8.
The rule will curb fees that cost American families more than $14 billion a year, the CFPB stated in its announcement. The agency estimates families will save more than $10 billion in late fees annually once the final rule goes into effect, an average savings of $220 per year for the more than 45 million people who are charged late fees.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said CFPB Director Rohit Chopra in the announcement. “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 rule would also eliminate the automatic annual inflation adjustment for the $8 late fee threshold, and would require credit card issuers to prove that the higher fee is necessary to cover their actual collection costs in order to be able to charge fees above the threshold.
“Promoting competition is a core part of the Biden-Harris Administration’s economic agenda, and combatting hidden and deceptive fees has been a priority of the Administration from the beginning,” the White House stated in an announcement.
Americans for Financial Reform,which advocates for stronger federal financial regulation, praised the rule. “There are changes that fiddle at the edges of a problem and there are reforms like this one that will save consumers billions each year by slashing a particularly nasty kind of junk fee,” said Amanda N. Jackson, its director of consumer campaigns, in a statement.
The rule is scheduled to take effect later this spring, but the banking industry is expected to sue the CFPB to stop it from being enforced, the Post reported.
The CFPB rule drew criticism from industry groups and Republican politicians, the Post reported.
“The rule’s policy goals are, at best, consumer redistribution, not consumer protection,” said Consumers Bankers Association (CBA) President and CEO Lindsey Johnson in a statement. “Equally concerning is that this rule continues the CFPB’s deeply problematic practice of rushing to prioritize headlines at the expense of legal process.”
“Today’s flawed final rule will not only reduce competition and increase the cost of credit, but will also result in more late payments, higher debt, lower credit scores and reduced credit access for those who need it most,” said American Bankers Association (ABA) President Rob Nichols in a statement. “The Bureau’s misguided decision to cap credit card late fees at a level far below banks’ actual costs will force card issuers to reduce credit lines, tighten standards for new accounts and raise APRs for all consumers—even those who pay on time.”
“While lowering the cap on late penalties may sound like a good talking point, in practice it will decrease the availability of credit card products for those who need it most, raise rates for many borrowers who carry a balance but pay on time, and increase the likelihood of late payments across the board,” Sen. Tim Scott (R-S.C.) said in a statement reported by the Post. “Lawful and contractually agreed upon payment incentives promote financial discipline and responsibility.”
In related actions, the Federal Communications Commission (FCC) will introduce a proposal to ban “bulk billing,” a practice in which landlords can charge everyone within a single apartment building or office for cable, internet or satellite service, even if they don’t want to participate, the Post reported. The Agriculture Department intends to release final rules that target contracts in poultry pricing, with the goal of lowering prices for farmers.