Millions of Americans could soon see lower credit card bills after the Consumer Financial Protection Bureau on Tuesday finalized a federal rule limiting late payment fees to $8 a month, estimating the change will save households $10 billion a year.
Late fees have become a major source of profit for credit card issuers, generating more than $14 billion in 2022, according to bureau data. A 2010 rule imposed by the Federal Reserve was intended to limit fees but allowed adjustments for inflation, a provision that card issuers have used to increase their fees far beyond the actual costs they incur when payments arrive. late, the office said.
That allowed credit card companies to “reap billions of dollars in junk fees from American consumers,” said Rohit Chopra, the bureau's director. “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 new restriction limits issuers to a fee of $8 unless they can demonstrate that they need to charge more to cover their actual collection costs. It applies only to large issuers that have more than one million accounts open, but the agency estimates the rule will cover 95 percent of outstanding credit card balances.
The rule is scheduled to be published shortly in the Federal Register and will take effect 60 days later.
Banking trade groups fiercely oppose the rule and are likely to file lawsuits to try to block it.
Ian Katz, managing director at research firm Capital Alpha Partners, predicted the litigation would come “in a sympathetic district where the industry is likely to delay implementation of the rule while the case is considered.”
The Bank Policy Institute, a trade group, said the consumer bureau's justification of the rule fell short of the “reasoned analysis and evidentiary support” required by the Administrative Procedure Act, which governs rulemaking by the agency.
“Given the rule's multiple shortcomings and shortcomings, its fate is likely to be resolved in federal court,” said Greg Baer, executive director of the trade group. “All consumers who pay on time will now pay more, and low- and moderate-income borrowers who pose a higher risk will lose some access to credit.”
Lindsey Johnson, executive director of the Consumer Bankers Association, another trade group, said an office analysis which acknowledged that card issuers could “adjust other fees or interest rates to recover any lost revenue” as an indication that the rule could negatively impact cardholders.
He added: “By normalizing late credit card payments, the administration is knowingly putting consumers' financial health at risk.”
Consumer advocates applauded the change. The consumer office “showed its calculations” in explaining how he calculated the $8 fee limitsaid Lauren Saunders, associate director of the National Consumer Law Center. “That's how good data-driven regulation is.”
The final rule comes a little more than a year after the consumer bureau circulated a draft version for public comment. The final version is quite consistent with the previous proposal.
President Biden is likely to highlight the new rule in his State of the Union address on Thursday. His administration has turned the inter-institutional fight against what he calls “garbage rates” into an emblematic effort.
Mr Chopra's agency has enthusiastically welcomed this campaign, targeting fees that you consider excessive through a series of coercive actions and proposals for new restrictions. In January, the agency began the formal process of adopting a new rule that would reduce overdraft fees to $14 or less, down from the current standard of $35.
