Rohit Chopra, Director of the CFPB, testifies during the Senate Committee on Banking, Housing and Urban Affairs hearing titled “Semi-Annual Report to Congress of the Consumer Financial Protection Bureau,” in the Dirksen Building on November 30, 2023.
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The Consumer Financial Protection Bureau unveiled a new rule Tuesday that it said would limit the typical late fee that banks charge customers to $8 per incident.
By reducing late fees to $8 from an average of about $32, more than 45 million card users would save an average of $220 a year, the CFPB said in a statement.
The new rule, long awaited after an initial proposal was submitted early last year, comes after the agency said it reviewed market data related to the Card Act of 2009. Regulations tied to that law They gave card issuers the ability to charge increasing amounts of late payment fees.
“For more than a decade, credit card giants have been exploiting a loophole to reap billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in the statement. “Today's rule ends the era in which big credit card companies hide behind the excuse of inflation when they raise fees on borrowers and boost their own bottom lines.”
The announcement is the latest salvo in President Joe Biden's war against so-called junk tariffs.
Large banks that issue credit cards have been raising the cost of late fees since 2010, with fees exceeding $14 billion in 2022, according to the CFPB. The industry benefits from customers with low credit scores, who rack up an average of $138 a year in late payment fees per card, Chopra said.
The rule, which applies to card issuers with at least one million open accounts, also ends automatic inflation adjustments to late payment fees.
Instead, the agency said it would adjust the fee if necessary to cover collection costs, and that card issuers can charge higher fees if they demonstrate they are necessary. The rule does not directly affect interest rates, the CFPB said.
An industry group criticized the CFPB rule Tuesday, saying many card users will see higher interest rates and reduced credit availability. The group also questioned the process by which the rule was issued. The CFPB says Congress gave it the authority to administer the Card Act.
“The policy goals of the rule are, at best, consumer redistribution, not consumer protection,” Consumer Bankers Association head Lindsey Johnson said in a statement. “Equally troubling is that this rule continues the CFPB's deeply problematic practice of rushing to prioritize headlines at the expense of the legal process.”
Another industry group, the American Bankers Association, said it is considering options to oppose the CFPB rules.
In a statement, Republican Sen. Tim Scott of South Carolina said he would rely on the Congressional Review Act to fight the implementation of the late fee cap.
The rule takes effect 60 days after its publication in the Federal Register, the CFPB said.
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