CFPB Director Rohit Chopra testifies during a Senate Banking, Housing, and Urban Affairs Committee hearing titled “The Consumer Financial Protection Bureau's Semiannual Report to Congress,” in the Dirksen Building on Thursday, November 30, 2023.
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The Consumer Financial Protection Bureau unveiled a new rule Tuesday that it said would cap the typical late fees banks charge customers at $8 per incident.
By lowering late fees to $8 from an average of about $32, more than 45 million card users will save an average of $220 annually, the CFPB said in a statement.
The new rule, which had long been expected after an initial proposal was floated early last year, comes after the agency said it reviewed market data related to the CARD Act of 2009. Regulations associated with that law gave card issuers the ability to charge ever-increasing amounts of late fees.
“For more than a decade, credit card giants have been exploiting a loophole to reap billions of dollars in unwanted charges from American consumers,” CFPB Director Rohit Chopra said in the statement. “Today’s rule ends the era of major credit card companies hiding behind the excuse of inflation when they raise fees on borrowers and boost their bottom lines.”
The announcement is the latest salvo in President Joe Biden's war against so-called junk fees.
Big banks that issue credit cards have been raising the cost of late penalties since 2010, and fees exceeded $14 billion in 2022, according to the CFPB. The industry benefits from customers with low credit scores, who receive an average of $138 a year in late fees per card, Chopra said.
The rule, which applies to card issuers with at least 1 million open accounts, ends automatic inflation adjustments on late fees.
Instead, the agency said it will adjust fees if necessary to cover collection costs, and card issuers can charge higher fees if they prove they are necessary. The rule does not directly affect interest rates, the CFPB said.
An industry group criticized the CFPB's rule Tuesday, saying many card users will see higher interest rates and reduced credit availability. The group also questioned the process by which the rule was issued. The CFPB says Congress gave it the authority to administer the CARD Act.
“The rule’s policy goals are, at best, consumer redistribution, not consumer protection,” Lindsey Johnson, president of the Consumer Bankers Association, said in a statement. “Equally troubling is that this rule continues the CFPB’s deeply problematic practice of rushing to prioritize headlines at the expense of the legal process.”
Another industry group, the American Bankers Association, said it was considering options to respond to the CFPB rules.
In a statement, Republican Sen. Tim Scott of South Carolina said he would rely on the Congressional Review Act to fight the implementation of the cap on late fees.
The rule goes into effect 60 days after it is published in the Federal Register, the CFPB said.
