- The CFPB proposed a rule to crack down on credit card late fees, saving consumers up to $9 billion a year.
- It includes lowering the typical late fee amount and getting rid of automatic inflation adjustments.
President Joe Biden's administration just took the next step in cracking down on credit card late fees that cost Americans billions of dollars a year.
On Wednesday, the Consumer Financial Protection Bureau (CFPB) proposed a new rule to limit credit card late fees that the agency estimates cost Americans $12 billion each year. According to the agency's press release, a consumer could be hit with an "exorbitant" late fee that "far exceeds the credit card company's costs to collect late payments," and the new proposal would make those fees illegal and save consumers as much as $9 billion per year.
"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 in a statement. "Today's proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive."
This announcement comes after a plan Biden announced in October that would tackle a range of "junk fees," or often-confusing fees companies levy on unsuspecting consumers. His proposals included getting rid of unfair banking fees, along with excessive fees in the airline and hospitality industries, and the CFPB's proposal this week builds on those initiatives.
Specifically, the proposed changes to ease credit card fees would:
- Reduce typical late fees from around $30 to $8, and companies that charge a higher fee would need to prove why it would be necessary to cover collection costs
- Ban automatic annual inflation adjustment for the late fees
- And cap late fees at 25% of the required minimum payment, a big drop from the current rule that allows companies to charge consumers 100% of the minimum payment for a late fee.
Along with the CFPB's announcement, the White House also released a fact sheet outlining additional measures it's taking to combat junk fees — and it includes a call on Congress to pass legislation that would address the issue. That includes taking on "excessive online concert, sporting event, and other entertainment ticket fees," banning airline fees for family members to sit with young children, getting rid of fees when a consumer ends a contract early with a phone or Internet provider, and banning surprise resort fees on vacations.
"Look, folks, these are junk fees," Biden said during remarks last year. "They're unfair, and they hit marginalized Americans the hardest, especially low-income folks and people of color. They benefit big corporations, not consumers, not working families. And that changes now."
The CFPB's proposal on credit card late fees are part of the rulemaking process which includes a public comment period, and an exact implementation date has not yet been set.