Cfpb Slashes Credit Card Late Fees, Setting Up Clash With Gop, Banks

The Consumer Financial Protection Bureau on Tuesday unveiled a heavily anticipated rule cutting the late fees that credit card issuers can charge, delivering on an objective that President Joe Biden touted in his State of the Union address last year.

The regulation caps fees for a missed payment at $8, down from the current level of up to $41. The rule has already sparked intense pushback from banks and congressional Republicans pledging to fight its implementation. The Chamber of Commerce is vowing to sue.

“Late fees have gotten out of control,” said CFPB Director Rohit Chopra, who estimated the change will save families $10 billion a year. “Today the credit card industry hauls in more than $14 billion in late fee revenue, which our research shows is more than five times that of the companies’ associated costs,” Chopra said on a call Monday with reporters.

The rule is part of the Biden administration's broader campaign against so-called junk fees that has targeted industries from car dealers to cable operators. It's a central focus of Biden's reelection campaign and one that he'll likely highlight in Thursday's State of the Union speech.

Sen. Tim Scott of South Carolina, the top Republican on the Senate Banking Committee, said he would use the Congressional Review Act process to try to prevent the implementation of the rule, which is scheduled to take effect 60 days after its publication in the Federal Register.

“While lowering the cap on late penalties may sound like a good talking point, in practice, it will decrease the availability of credit card products for those who need it most, raise rates for many borrowers who carry a balance but pay on time, and increase the likelihood of late payments across the board,” Scott said in a statement.

Industry trade groups are already threatening litigation. Banking lobbyists argue that late payment fines, which are disclosed and meant to deter poor financial behavior, are different from the hidden fees charged by resorts and concert ticket vendors that have also drawn the White House’s ire.

The Chamber of Commerce will “imminently” file suit against the CFPB over the rule, said Neil Bradley, executive vice president, chief policy officer and head of strategic advocacy at the Chamber.

“Once again, the Consumer Financial Protection Bureau has exceeded its authority,” Bradley said in a statement. “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.”

The Bank Policy Institute, which represents large banks, said the rule “is a prime example of how the CFPB has been politicized, and how its regulatory actions promote rhetoric over analysis and data, and perceived short-term political gain over the long-term benefits of consumers.”

An industry lobbyist, who declined to be named to discuss a rule they were still reviewing, questioned whether the $10 billion in savings Chopra touted would still be accurate when accounting for the resulting rise in annual fees and interest rates the lobbyist said would occur as a result of the rule.

The White House trumpeted the rule in a press release decrying “corporate rip-offs” and included it in a blog post by the Council of Economic Advisers saying the administration’s various actions against “junk fees” would save consumers more than $20 billion a year.

The administration kicked off an interagency crackdown against consumer fees last year. The Federal Trade Commission proposed a rule in November to bar companies from charging hidden fees and requiring them to list prices upfront at the time of a transaction. The FTC also finalized a rule in December requiring car dealers to obtain consumers’ “express, informed consent for charges” and prohibiting the sale of “any add-on product or service that confers no benefit to the consumer.”

The Federal Communications Commission, meanwhile, proposed a rule in December to ban early termination fees for cable operators and plans to vote later this month on a pricing transparency rule for cable and satellite services. And the Department of Labor proposed a rule in the fall to cut down on “junk fees” in retirement products.

The CFPB itself in January proposed a rule cracking down on banks’ use of overdraft fees when a customer overdraws their account.

But the Bureau has trained particular scrutiny on the credit card industry in recent weeks, publishing a blog post saying that interest rate margins have reached an all-time high and citing research indicating that small card issuers offer lower rates than larger banks.

The rollout of the late-fee rule, which will exempt banks with fewer than 1 million credit card customers, was timed to coincide with the sixth meeting of the Biden administration’s Competition Council Tuesday, two days before the president is set to deliver his next State of the Union speech.