Biden administration would cap credit card late fees at $8, part of campaign against junk fees
WASHINGTON (AP) — The Biden administration announced a rule Tuesday to cap all credit card late fees, the latest effort in the White House push to end what it has called junk fees and a move that regulators say will save Americans up to $10 billion a year.
The Consumer Financial Protection Bureau’s new regulations will set a ceiling of $8 for most credit card late fees or require banks to show why they should charge more than $8 for such a fee.
The rule would bring the average credit card late fee down from $32. The bureau estimates banks brought in roughly $14 billion in credit card late fees a year.
President Joe Biden highlighted the proposal along with other efforts to reduce costs to Americans at a meeting of his competition council on Tuesday. The Democratic president also said he’s forming a new strike force to crack down on illegal and unfair pricing on things like groceries, prescription drugs, health care, housing and financial services.
Biden said at the start of the council meeting that the current late fees are generating five times more money than what it costs credit card companies to collect late payments.
“They’re padding their profit margins and charging hardworking Americans more,” Biden said. “It’s a lot of money.”
The president also noted that companies are effectively raising prices by putting fewer potato chips in the bags sold at grocery stores. Even the “Sesame Street” character Cookie Monster has noticed so-called “shrinkflation” by saying on social media that he’s paying more for fewer cookies, Biden said.
The strike force will be led by the Justice Department and the Federal Trade Commission, according to a White House statement.
The Biden administration has portrayed the White House Competition Council as a way to save people money and promote greater competition within the U.S. economy.
The White House Council of Economic Advisers produced an analysis indicating that the Biden administration’s efforts overall will eliminate $20 billion in annual junk fees. The analysis found that consumers pay about $90 billion a year in junk fees, including for concerts, apartment rentals and auto dealers.
The effort appears to have done little to help Biden politically ahead of this year’s presidential election. Just 34% of U.S. adults approve of Biden’s economic leadership, according to a new survey by The Associated Press-NORC Center for Public Affairs Research.
Sen. Tim Scott, R-South Carolina, criticized the CFPB cap on credit card late fees, saying that consumers would ultimately face greater costs through higher interest rates and less access to credit.
“It will decrease the availability of credit card products for those who need it most, raise rates for many borrowers who carry a balance but pay on time, and increase the likelihood of late payments across the board,” Scott said.
Rob Nichols, the CEO of the American Bankers Association, said the CFPB “relied on flawed assumptions and a mischaracterization of the important role late fees play in promoting responsible consumer behavior.”
The U.S. Chamber
of
Commerce said it will file a lawsuit to try to prevent the federal agency from capping late fees at $8.
“The Consumer Financial Protection Bureau has exceeded its authority,” said Neil Bradley, the chamber’s executive vice president and chief policy officer. “The agency’s final credit card late fee rule punishes Americans who pay their credit card bills on time by forcing them to pay for those who don’t.”
Americans held more than $1.05 trillion on their credit cards in the third quarter of 2023, a record, and a figure certain to grow once the fourth-quarter data is released by the Federal Deposit Insurance Corp. next month. Those balances are now carrying interest on them, which is the highest it has been since the Federal Reserve started tracking the data back in the mid-1990s...