Rohit Chopra, Director of the CFPB, testifies during the Senate Committee on Banking, Housing and Urban Affairs hearing entitled “Semi-Annual Report of the Consumer Financial Protection Bureau to Congress” on November 30, 2023 in the Dirksen Building.
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The Consumer Financial Protection Bureau unveiled a new rule Tuesday that would cap the typical late fee that banks charge customers to $8 per incident.
Reducing late fees from an average of about $32 to $8 could save more than 45 million card users an average of $220 annually, a CFPB news release said.
The new rule, long-awaited after an initial proposal was put forward early last year, comes after the agency said it had reviewed market data related to the 2009 card law. Regulations associated with this law gave card issuers the ability to charge increasingly higher late fees.
“For over a decade, credit card giants have exploited a loophole to collect billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in the release. “Today’s ruling ends the era of large credit card companies hiding behind the excuse of inflation as they raise fees for borrowers and boost their own profits.”
The announcement is the latest salvo in President Joe Biden’s war on so-called junk fees.
The major banks that issue credit cards have been increasing the cost of late penalties since 2010, and the fees will exceed $14 billion in 2022, according to the CFPB. The industry benefits from customers with low credit scores, who pay an average of $138 a year in late fees per card, Chopra said.
The rule, which applies to card issuers with at least one million open accounts, also ends the automatic inflation adjustment for late payment interest.
Instead, the agency said it would adjust the fee as necessary to cover collection costs and that card issuers could charge higher fees if they demonstrated they were necessary. The rule has no direct impact on interest rates, the CFPB said.
An industry group criticized the CFPB rule on Tuesday, saying many card users would experience higher interest rates and reduced credit availability. The group also questioned the process through which the rule was issued. The CFPB says Congress gave it the authority to administer the mapping law.
“The policy objectives of the rule are, at best, consumer redistribution, not consumer protection,” Lindsey Johnson, head of the Consumer Bankers Association, said in a statement. “Equally concerning, this rule continues the CFPB’s deeply problematic practice of rushing to headlines at the expense of litigation.”
Another industry group, the American Bankers Association, said it was considering options to challenge the CFPB’s rules.
In a press release, Republican Sen. Tim Scott of South Carolina said he would rely on the Congressional Review Act to fight implementation of the late fee cap.
The rule will take effect 60 days after it is published in the Federal Register, the CFPB said.
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2024-03-05 17:25:33
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