U.S. caps credit card late charges in new rule

Move comes as part of larger Biden administration campaign against ‘junk fees’

The U.S. government Tuesday announced it would sharply limit the fees credit card companies can charge customers who fall behind on their bills, aiming to cap the penalties at $8 in a move that immediately drew fierce resistance from financial giants.

The rules arrived as part of a suite of fresh federal efforts to promote competition and crack down on unfair or illegal pricing across the economy, which President Joe Biden has blasted as one of the primary sources of rising costs facing American families over the past year.

Under the new regulations, credit card issuers including Bank of America, Capital One, Citibank and JPMorgan Chase cannot charge more than $8 for a late payment unless they can explicitly point to data showing they must impose higher fees to make up for losses.

In issuing the restrictions, the Consumer Financial Protection Bureau said the government intends to close a legal loophole that had allowed some financial giants to charge an average of $32 per month for a missed or late payment. The amount has proved onerous for some cash-starved cardholders, while enriching the credit card industry, which reaped more than $14 billion in revenue from late fees in 2022, according to the CFPB.

“We have seen the junk fee era really creep across so many sectors of the economy, and across the government. We’re just trying to make sure consumers and small businesses and workers are getting a fair shake wherever they go,” said Rohit Chopra, the agency’s director, on a call previewing the announcement with reporters.

The policy is set to take effect later this spring, and it could save cardholders about $10 billion each year, according to the bureau, which estimates about 45 million people have faced such fees. But its fate remains unclear: The banking industry is expected to sue the CFPB over the rules, adding to the agency’s legal woes as the Supreme Court is weighing the future of its funding and regulatory powers in a separate pending case.

“While the administration is messaging this rule as a ‘win’ for consumers going into an election year, it’s anything but,” said Lindsey Johnson, the president of the Consumer Bankers Association, whose board of directors includes executives from Bank of America, Chase and Wells Fargo. “By normalizing being late on credit card payments, the Administration is knowingly putting consumers’ financial health at risk.”

The CFPB announced its longawaited cap ahead of a scheduled meeting Tuesday between Biden and his top council of advisers on competition issues. Federal officials plan to unveil other actions there meant to crack down on “junk fees,” including a “strike team” run by the Justice Department and the Federal Trade Commission, which will probe anticompetitive pricing practices in areas such as prescription drugs, groceries, housing and financial services.

The spate of federal activity reflects Biden’s ongoing campaign to stamp out the root causes of persistent inflation. Even as the costs of groceries, gas and other goods have leveled out in recent months, some Americans still report they are struggling to afford their basic needs — a problem the president has blamed at times on corporate profiteering.