April 12, 2024

MediaBizNet

Complete Australian News World

Credit card late fees are capped at $8 as part of the Biden administration's crackdown on unwanted charges

Credit card late fees are capped at $8 as part of the Biden administration's crackdown on unwanted charges

Boyke/iStockPhoto/Getty Images

The maximum credit card late fee will be capped at $8.


New York
CNN

Federal regulators finalized a rule Tuesday to cap most credit card late fees at $8 as part of a broader push by the Biden administration to eliminate unwanted fees.

The Consumer Financial Protection Bureau appreciates the new regulation, It was first proposed in February 2023would save families more than $10 billion annually by lowering fees from an average of $32.

the The new rule applies to large credit card issuers – Those with more than 1 million accounts. These companies account for more than 95% of all outstanding credit card debt, according to the CFPB.

The new campaign to target credit card fees comes as the White House aims to show it is taking action to help families affected by rising costs of living. The CFPB also proposed a rule in January that would do just that Limit excessive overdraft fees.

It also comes as Americans continue to rack up credit card debt, which has happened recently It exceeded a record $1.1 trillion. Some borrowers, especially millennials and low-income people, have been as well Defaulting on their credit card debts After more than two years of high inflation.

More than 45 million people are charged late fees on credit cards each year, according to the CFPB. Organizers say these individuals will now save an average of $220 annually.

The new rule aims to close a 2010 loophole that the CFPB says credit card companies “exploited,” allowing them to raise fees on borrowers who made late payments.

READ  UK inflation rises to 10.1% driven by food prices

“For more than a decade, credit card giants have exploited a loophole to reap billions of dollars in unwanted charges from American consumers,” CFPB Director Rohit Chopra said in a statement. “Today’s law ends the era of major credit card companies hiding behind the excuse of inflation when they raise fees on borrowers to boost their bottom lines.”

The financial industry has criticized the CFPB, warning that the new regulation will hurt consumers by pushing more people into late payments, hurting their credit scores.

“Today’s announcement is a prime example of how the CFPB has been politicized, and how its regulatory actions promote rhetoric over analysis and data,” Greg Baer, ​​CEO of the Bank Policy Institute, a banking trade group, said in a statement. He added that the CFPB puts “short-term political gains over long-term benefits to consumers.”

The U.S. Chamber of Commerce went further, saying it would “soon” file a lawsuit against the CFPB to block the “misleading and harmful” regulation from taking effect.

“Once again, the Consumer Financial Protection Bureau has overstepped its authority,” Neil Bradley, the chamber’s chief policy officer, said in a statement. “The agency’s final credit card late charge rule penalizes Americans who pay their credit card bill on time by forcing them to pay those who do not.”

The CFPB declined to comment on the chamber's threatened lawsuit.

However, Sam Gilford, a CFPB spokesman, told CNN that when the rule was first proposed last year, the agency received thousands of “overwhelmingly” positive comments from the public. “Today’s law closes a long-standing loophole that has been abused by credit card giants to turn late fees into a major source of revenue,” Guilford said.

READ  Hostage situation ends at Apple Store Amsterdam | news | DW

The new rule will go into effect 60 days after it is published in the Federal Register, the CFPB said in its statement. A CFPB spokesperson told CNN that the agency expects to publish the rule in the Federal Register within a few weeks. This puts the rule on track to take effect on June 1.

Analysts were surprised by regulators' quick plans to fully implement the new rule.

“This is a few months faster than we expected. We believe it is intended to accelerate litigation,” Jarrett Seberg, a financial services analyst at TD Cowen Washington Research Group, said in a note to clients.

If Biden wins re-election, Seberg said a court fight over the credit card rule could eventually reach the Supreme Court, where he believes the CFPB “has the advantage.”

The way the CFPB designed the rule eliminated “many potentially strong legal arguments” that the industry could have used to fight it, said Ed Mills, a Washington policy analyst at Raymond James.

“We are generally skeptical that the industry will succeed in flipping the base,” Mills said in a note to clients.

The White House is expected to introduce the ban on excessive credit card late fees later Tuesday when President Joe Biden convenes his competition council. The White House said the council would detail steps aimed at “combat corporate fraud.”

Some consumer advocates are praising the new credit card regulations as a way to help vulnerable families.

“It's simply unfair to charge a hefty late penalty that far exceeds the credit card company's costs, especially when someone is only a few hours or two days late on their payment,” said Chuck Bell, advocacy program director at Consumer Reports. In the current situation. He called the new rule “reasonable” and a way to make a “real difference.”

READ  Elon Musk joins Twitter's board, sparks 'important improvements'

Senator Elizabeth Warren, a Democrat from Massachusetts, welcomed the move from the CFPB.

“These unwanted fees are designed to boost Wall Street profits at the expense of the working class,” Warren said in a statement. Share on X. “This government works for the people, not the big banks.”

Watch this interactive content on CNN.com