Among the latest efforts in the White House is a push to end "junk fees" in a move that regulators claim will save Americans up to $10 billion a year.
U.S. President Joe Biden listens as Vice President Kamala Harris introduces him during an event about his administration's approach to artificial intelligence in the East Room of the White House on October 30, 2023 in Washington, DC.
On Tuesday, the Biden administration announced a rule to cap all credit card late fees as part of the president's latest campaign promise.
According to The Consumer Financial Protection Bureau's new regulation, a set limit of $8 will be implemented for most credit card late fees or will require banks to show why they should charge more than $8 for such a fee.
The new statute would bring the average credit card late fee down from $32. The bureau estimates roughly $14 billion in credit card late fees is collected yearly by banking institutions.
"In credit cards, like so many corners of the economy today, consumers are beset by junk fees and forced to navigate a market dominated by relatively few, powerful players who control the market," said Rohit Chopra, director of the bureau, in a statement.
What Does The New Rule Entail?
The announcement is part of a proposal President Joe Biden plans to highlight along with other cost-reducing efforts to Americans at a meeting of his competition council on Tuesday. Biden intends to crack down on illegal and unfair pricing on things like groceries, prescription drugs, health care, housing, and financial services, said The Associated Press
Per ABC News, the agency stated its new rule closes a loophole in a federal law called the CARD Act, which allows major credit card issuers to charge customers growing fees when they are late on their payments. It would also serve as a prevention method from issuers automatically increasing fees based on inflation.
Industry groups representing big banks and credit issuers are opposed to the rule and argue it could force them to raise the interest rates they charge consumers.
"The rule's policy goals are, at best, consumer redistribution, not consumer protection," the Consumer Bankers Association, which represents banks and credit card issuers, said in a statement.
"Today's flawed final rule will not only reduce competition and increase the cost of credit, but will also result in more late payments, higher debt, lower credit scores, and reduced credit access for those who need it most," American Bankers Association President and CEO Rob Nichols said in a statement. "The Bureau's misguided decision to cap credit card late fees at a level far below banks' actual costs will force card issuers to reduce credit lines, tighten standards for new accounts, and raise APRs for all consumers - even those who pay on time."
The CFPB expects the policy to take effect in mid-May.
