The U.S. Consumer Financial Protection Bureau (CFPB) has finalized a rule that will cut credit card late fees to $8 from $32 as part of the Biden administration’s crackdown on so-called “junk fees.”
The change is expected to save more than $10 billion in late fees annually once it comes into effect, generating an average of $220 per year in savings for more than 45 million Americans, according to the agency. The new rule closes a loophole in federal legislation that lets major credit card issuers charge customers increasingly large late fees.
“Today’s rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines,” CFPB Director Rohit Chopra said in a statement.
The Consumer Bankers Association, which represents banks and credit card issuers, argues that the rule could force them to raise interest rates charged to other consumers. The industry group said the rule’s goals are “at best, consumer redistribution, not consumer protection,” the group wrote in a statement.
Expected to go into effect in May, the rule applies to issuers with over 1 million open accounts.
The rule is one of several initiatives U.S. President Joe Biden is expected to discuss with his competition council, a group of administration officials tasked with encouraging competition, on Tuesday as part of a broader push against junk fees — hidden fees companies use to squeeze extra cash out of consumers. Some common examples are convenience fees — like an additional charge to accept bill payments online or over the phone — and late fees.
The U.S. Council of Economic Advisers estimates that American consumers spend $90 billion annually on junk fees, or over $650 per household annually. The White House claims that its series of initiatives combating these fees will help reduce that cost by more than $20 billion per year.
The president is also launching a new “strike force” co-chaired by the U.S. Department of Justice and the Federal Trade Commission (FTC) that will focus on eliminating “anti-competitive, unfair, deceptive, or fraudulent business practices” in areas like “prescription drugs and health care, food and grocery, housing and financial services.”
The FTC has proposed rules that would ban companies from charging junk fees and ban auto dealers from using “bait-and-switch tactics to deceive consumers.” The U.S. Department of Labor and U.S. Federal Communications Commission have also proposed anti-junk fee rules against hidden charges in retirement products and cable and satellite services, respectively.
The U.S. Department of Agriculture on Tuesday finalized a rule protecting farmers and ranchers and promote competitive agricultural markets by cracking down on poultry and meat processors’ “deceptive contracts.”