During Thursday's State of the Union address, President Joe Biden said he backs the Consumer Financial Protection Bureau's proposal to cap credit card late fees to $8 per missed payment.
The CFPB’s proposed rule would also limit late fees to 25% of the required minimum payment.
The rule will go through a period of public feedback before being implemented by the Biden administration.
"The banks and credit card companies don’t like it. Why? I’m saving American families $20 billion a year with all of the junk fees I’m eliminating," President Biden said.
The banking industry has come out opposed to the proposal.
Independent Community Bankers of America CEO Rebeca Romero Rainey blasted "President Biden’s gross mischaracterization of legitimate overdraft protection services and credit card fees for late payments as ‘junk fees.’"
“ICBA remains concerned that the CFPB’s proposed rulemaking on overdraft services and final rule on credit card fees for late payments will have unintended consequences on all institutions," Romero Rainey said. "These restrictions would also have a negative ripple effect on customers and businesses that rely on overdraft services by causing them to experience the harsh realities of rejected payments.
"The rejection of a payment for a life-saving medical need, or the rejection of payroll payments for a small business’ employees, are just two examples of the significant impact these punitive policies would have. Additionally, the administration's ill-advised policy on credit card late fees sends the wrong message that punctual credit card payments are not a significant priority, which could result in consumers making more late payments and incurring additional interest charges in the long term."
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CFPB officials say that $8 per missed payment far exceeds the collection costs associated with late payments. The CFPB says late fees can currently reach $41 per missed payment. Rules put in place over a decade ago capped first-time missed payments to $25, which was allowed to go up based on inflation. The new rule would not increase the allowable late fee based on inflation.
The Biden administration estimates that the proposal would reduce credit card companies’ late fee revenue by $9 billion annually.
Hours before President Biden's address, the American Bankers Association and the U.S. Chamber of Commerce filed a lawsuit attempting to stop the rule from being implemented.
“The CFPB’s action to cap credit card late fees below banks’ actual costs exceeds its authority and would result in more late payments, increased debt, reduced credit access and higher APRs for all consumers—including the vast majority of cardholders who pay on time each month,” American Bankers Association CEO Rob Nichols said. “Once again, we have reluctantly been forced to sue a federal regulator because the CFPB has ignored industry and other stakeholder comments demonstrating that this rule exceeds the bureau’s statutory authority and will hurt rather than help consumers. This rule is about politics not policy, and we look forward to the court’s review.”
The proposal comes as U.S. credit card debt hits all-time highs. As of the end of 2023, 6.36% of U.S. credit card debt was considered more than 90 days delinquent. The delinquency rate is now at the highest in the U.S. it has been in over a decade.
The Federal Reserve says there is $1.13 trillion in outstanding credit card debt in the U.S., which increased by $50 billion in the last quarter of 2023 alone.
@scrippsnews President Biden is cracking down on junk fees, and wants credit card late fees capped at $8. However banking groups disagree and recently filed a complaint against the rule. Here’s what that could mean for you. #banking #money #government ♬ original sound - Scripps News
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