Rohit Chopra, director of the CFPB, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing entitled “The Consumer Financial Protection Bureau's Semi-Annual Report to Congress” in the Dirksen Building on Thursday, November 30, 2023.
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The Consumer Financial Protection Bureau on Tuesday unveiled a new rule that would limit the typical late fee banks charge customers to $8 per incident.
By reducing late fees from an average of $32 to $8, more than 45 million card users would save an average of $220 annually, the CFPB said in a news release.
The new rule, long anticipated after an initial proposal was submitted early last year, comes after the agency said it had reviewed market data related to the 2009 Map Act. Regulations associated with that law gave card issuers the ability to charge increasingly large amounts for late payments.
“For more than a decade, credit card giants have been exploiting a legal loophole to collect billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in the press release. “The current rule ends the era of big credit card companies hiding behind the excuse of inflation as they raise fees for borrowers and improve their own bottom lines.”
The announcement is the latest salvo in President Joe Biden's war against so-called junk fees.
The major banks that issue credit cards have increased the cost of late penalties since 2010, and the cost exceeded $14 billion by 2022, according to the CFPB. The industry benefits from customers with low credit scores, who earn an average of $138 in late fees per card annually, Chopra said.
The rule, which applies to card issuers with at least one million open accounts, also ends automatic inflation adjustments on late payments.
Instead, the agency said it would adjust fees as necessary to cover collection costs, and that card issuers could charge higher fees if they prove they are necessary. The rule will not have a direct impact on interest rates, the CFPB said.
An industry group criticized the CFPB rule on 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 has given it the authority to implement the Map Act.
“The policy objectives of the rule are at best redistribution to consumers, not consumer protection,” Lindsey Johnson, head of the Consumer Bankers Association, 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 litigation.”
Another industry group, the American Bankers Association, says it is considering options to go against the CFPB's rules.
In a press release, Republican Senator Tim Scott of South Carolina said he would lean on the Congressional Review Act to fight the implementation of the late fee cap.
The rule will take effect 60 days after publication in the Federal Register, the CFPB said.