The Consumer Financial Protection Bureau revealed a new regulation on Tuesday aimed at capping the standard late fee imposed by banks on customers at $8 per occurrence.
By reducing late fees to $8 from an average of around $32, over 45 million cardholders stand to save an average of $220 annually, stated the CFPB in a press release.
The implementation of this new regulation, which was long anticipated following an initial proposal put forth early last year, follows a thorough review of market data associated with the 2009 Card Act, as announced by the agency. Regulations linked to this legislation granted card issuers leeway to impose progressively higher 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,” remarked CFPB Director Rohit Chopra in the release. “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.”
This announcement represents the latest move in President Joe Biden’s campaign against what he terms “junk fees.”
According to the CFPB, major banks issuing credit cards have been steadily increasing late penalty charges since 2010, with fees surpassing $14 billion in 2022. Chopra highlighted that the industry benefits from customers with low credit scores, who incur an average of $138 in late fees per card annually.
The new regulation, applicable to card issuers with at least one million active accounts, also eliminates automatic inflation adjustments on late fees. Instead, the agency stated it would adjust the fee if necessary to cover collection expenses, with card issuers permitted to charge higher fees if they can demonstrate their necessity. The regulation does not directly impact interest rates, clarified the CFPB.
However, an industry group criticized the CFPB’s regulation on Tuesday, expressing concerns that many cardholders could face higher interest rates and reduced access to credit. The group also questioned the rule’s issuance process, while the CFPB asserts that Congress granted it the authority to oversee the Card Act.
“The rule’s policy goals are, at best, consumer redistribution, not consumer protection,” stated Consumer Bankers Association head Lindsey Johnson. “Equally concerning is that this rule continues the CFPB’s deeply problematic practice of rushing to prioritize headlines at the expense of legal process.”
Another industry body, the American Bankers Association, mentioned exploring options to contest the CFPB’s regulations. Republican Senator Tim Scott of South Carolina announced plans to utilize the Congressional Review Act to challenge the implementation of the late fee cap.
The regulation is set to take effect 60 days after its publication in the Federal Register, according to the CFPB.
