The Consumer Financial Protection Bureau is proposing new rules limiting credit card late fees to $8 per missed payment. The CFPB’s proposed rule would also limit late fees to 25% of the required minimum payment.
The rule will go through a period of public feedback before being implemented by the Biden administration.
CFPB officials say that $8 per missed payment far exceeds the collection costs associated with late payments. The CFPB says that late fees can currently reach $41 per missed payment. Rules put in place over a decade ago capped first-time missed payments to $25, but that was allowed to go up based on inflation. The new rule would not increase the allowable late fee based on inflation.
The Biden administration estimates that the proposal would reduce credit card companies’ late fee revenue by $9 billion annually.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” said CFPB Director Rohit Chopra. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
President Joe Biden is expected to highlight the proposed rule change at a White House event Wednesday afternoon.
Government data indicate that credit card late payments increased before the pandemic. Americans spent up to $14 billion in credit card late fees in 2019. Those with subprime accounts averaged spending $138 per account in late fees in 2019.
In 2020, late fees accounted for $12 billion of credit card companies’ $117 billion in total interest and fees collected, government data indicate.
The average late fee in 2020 was $26, going up to $34 for those who missed multiple payments, according to government data.
The American Bankers Association, which includes representatives of regional banks on its board, released a statement in opposition of the proposal.
"If the proposal is enacted, credit card issuers will be forced to adjust to the new risks by reducing credit lines, tightening standards for new accounts and raising APRs for all consumers, including the millions who pay on time," said organization President Rob Nichols. "The current safe harbor was created by the Federal Reserve under the Obama Administration and sustained by every CPFB Director until today. It was based on substantial research, stakeholder input and a careful rulemaking process, covers a significant portion of issuer costs, offers meaningful encouragement to pay on time and provides legal certainty to issuers and consistency to consumers."
Scripps News has contacted Visa, Mastercard and American Express for a reaction to Biden’s proposal.