The Consumer Financial Protection Bureau capped bank card late charges as a part of the Biden administration struggle towards junk charges.

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The Consumer Financial Protection Bureau capped bank card late charges as a part of the Biden administration struggle towards junk charges.

Justin Sullivan/Getty Images

The value of a late cost in your bank card may quickly be taking place.

Federal regulators issued a brand new rule Tuesday capping bank card late charges at $8, down from the present common of $32. The transfer is predicted to avoid wasting prospects an estimated $10 billion a yr.

Consumer advocates praised the measure as offering welcome reduction for hundreds of thousands of bank card customers, however enterprise pursuits accused regulators of overstepping their authority and promised authorized motion to forestall the rule from going into impact.

“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” mentioned Rohit Chopra, director of the Consumer Financial Protection Bureau, in a statement. “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.”

A survey by Consumer Reports final yr discovered one in 5 adults had paid a bank card late charge inside the previous twelve months. By regulation, the charges are presupposed to be tied to a bank card issuer’s personal prices related to the late cost.

The bureau discovered that whilst banks have adopted cheaper processes for coping with late funds, the charges have continued to climb, boosting financial institution revenues. In 2022, late charges assessed by banks totaled $14 billion.

The Biden struggle towards junk charges

The CFPB rule caps late charges at $8 for the most important bank card issuers, who collectively account for 95% of all bank card balances. Banks may cost larger charges provided that they’ll present it’s a necessity to cowl their precise assortment prices. The rule wouldn’t have an effect on rates of interest on unpaid bank card balances, which common greater than 20%.

CFPB Director Rohit Chopra mentioned Tuesday bank card firms had been ‘exploiting a loophole to reap billions of {dollars} in junk charges from American customers.’

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CFPB Director Rohit Chopra mentioned Tuesday bank card firms had been ‘exploiting a loophole to reap billions of {dollars} in junk charges from American customers.’

Kevin Dietsch/Getty Images

Consumer advocates cheered the bureau’s crackdown, which is a component of a bigger effort to fight what the Biden administration calls “junk fees.”

“This is really an example of government in action to help consumers,” mentioned Chi Chi Wu, a senior legal professional on the National Consumer Law Center.

She notes that many bank card customers who depend on digital statements could be a day or two late in making their bank card funds as a result of they do not have the reminder of a bodily invoice.

“That’s an oops,” Wu says. “That’s not a sign of risk. So why is it you get hit with that late fee the day after? It’s because it’s so profitable for the credit card bank.”

‘Real monetary hardship’ for Americans

In 2022, late charges ranged from $30 for a primary missed cost to $41 for subsequent funds.

“While those amounts may seem small to some people, they represent a real financial hardship to the countless Americans struggling to make ends meet,” mentioned Dennis Kelleher, president of Better Markets, a monetary watchdog group.

The U.S. Chamber of Commerce mentioned the CFPB had gone too far with the brand new cap on late charges, which is meant to take impact in 60 days.

“The agency’s final credit card late fee rule punishes Americans who pay their credit card bills on time by forcing them to pay for those who don’t,” mentioned Neil Bradley, govt vice chairman of the chamber. “The Chamber will be filing a lawsuit against the agency imminently to prevent this misguided and harmful rule from going into effect.”

Others warned the rule may have unintended penalties.

“On the surface, this is undoubtedly a good thing for credit cardholders,” mentioned Matt Schulz, chief credit score analyst at LendingTree. “However, the reality is that it will also increase the likelihood that banks raise other types of fees to make up for the lost revenue.”