Making a postpayment on your credit card could soon be a lot less expensive.
The Consumer Financial Protection Bureau, or CFPB, announced Tuesday that it has finalized a rule to reduce the typical late fee charged by large card issuers from $32 to $8. According to the CFPB, the change could save each of the 45 million Americans pay these fines approximately $220 each year.
The rule is part of the Biden administration’s multi-pronged crackdown on junk fees — and, in particular, is a step intended to “stop some credit card companies from ripping you off with late fees,” President Joe said Biden in a prepared speech Tuesday.
Get rid of credit card fee loopholes
It all goes back to the Credit Card Accountability Responsibility and Disclosure Act of 2009, or CARD Act, which (in part) aimed at excessive penalties such as late fees. After its implementation, the law only allowed card companies to impose “reasonable and proportional” fees tied to the cost of dealing with late payments, according to a CFPB press release.
But the CFPB says the CARD Act also included an immunity provision that allowed companies to “evade liability” if those fees were below a certain threshold — specifically, $25 for the first late payment and $35 for subsequent ones. , plus annual adjustments for inflation. The CFPB says its new rule lowers that threshold, requiring some large companies to “charge a maximum late fee of $8 or justify a higher amount by showing that they must charge more to cover actual collection costs.” .
It also reverses the annual automatic inflation adjustment, which CFPB Director Rohit Chopra Money said has been used “to increase late fees every year almost wholesale,” amounting to a “gold mine” for companies. In 2022 alone, card companies collected an estimated $14 billion in late fees.
“Federal law prohibits excessive or unreasonable fees,” it says. “We found a loophole that they were abusing and exploiting, and we are closing it.”
To be clear, big card companies can still charge more than $8 in late fees — now they have to show that sum is actually needed to chase payments. These companies still have the power to raise interest rates and decrease customers’ credit lines to get them to pay on time.
“I’d rather they build a business where they root for your success, rather than celebrate when you screw up,” Chopra adds.
Possible impact on cardholders and credit card rewards
Reactions to the rule have been mixed, with some critics criticizing its origins, scope and consequences.
Lindsey Johnson, president and CEO of the Consumer Bankers Association, said in a statement that the White House is “normalizing late credit card payments” and as a result “knowingly putting consumers’ financial health at risk.” As the Washington Post reports, some card issuers have said that limiting revenue for late payments could result in fewer benefits and rewards for cardholders.
The U.S. Chamber of Commerce, an advocacy group, said in its own press release that it plans to file a lawsuit to block the rule from going into effect.
“The agency’s final rule on credit card late fees punishes Americans who pay their credit card bills on time by forcing them to pay for those who don’t,” said Neil Bradley, executive vice president, chief policy officer and head of strategic defense. . “This will result in fewer card offers and limit access to affordable credit for many consumers.”
Despite legal challenges, the rule will take effect 60 days after publication in the Federal Register.
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