The U.S. government on Tuesday announced it would sharply limit the fees that 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.
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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 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 that 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 long-awaited 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 that the president has blamed at times on corporate profiteering.
“Even as prices have come down on important items … some corporations aren’t passing those savings onto consumers,” said Lael Brainard, the director of the White House National Economic Council. “Instead, some corporations are tacking on extra fees, hiding costs and sometimes even breaking the law.”
The announcements set the stage for Biden’s State of the Union address on Thursday, roughly a year after he used that same speech to assail the scourge of “hidden surcharges [that] too many companies use to make you pay more.”
Get a curated selection of 10 of our best stories in your inbox every weekend.
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 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 that 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 long-awaited 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 that the president has blamed at times on corporate profiteering.
“Even as prices have come down on important items … some corporations aren’t passing those savings onto consumers,” said Lael Brainard, the director of the White House National Economic Council. “Instead, some corporations are tacking on extra fees, hiding costs and sometimes even breaking the law.”
The announcements set the stage for Biden’s State of the Union address on Thursday, roughly a year after he used that same speech to assail the scourge of “hidden surcharges [that] too many companies use to make you pay more.”
