The Biden administration, in an effort to abolish what it has labeled junk fees, unveiled a regulation on Tuesday capping all credit card late fees. According to regulators, this will save Americans as much as $10 billion annually.
(Photo : by Justin Sullivan/Getty Images)The Biden administration, in an effort to abolish what it has labeled junk fees, unveiled a regulation on Tuesday capping all credit card late fees. According to regulators, this will save Americans as much as $10 billion annually.
The new rules from the Consumer Financial Protection Bureau would cap most credit card late fees at $8 or force banks to provide justification for charging more than $8.
The average credit card late charge would decrease from $32 to $2 under the regulation. According to the FBI, banks earned about $14 billion in annual revenue from credit card late fees.
At his competition council meeting on Tuesday, President Joe Biden emphasized the suggestion along with other initiatives aimed at cutting prices for Americans. In an effort to combat unfair and unlawful pricing practices for goods and services like prescription pharmaceuticals, food, housing, health care, and financial services, the Democratic president also announced the formation of a new strike force.
At the outset of the council meeting, Biden stated that the present late fees are producing five times the revenue of what credit card firms incur in collecting past-due payments.
In addition, the president pointed out that businesses are essentially driving up costs by including fewer potato chips in the bags that grocery shops sell. According to Biden, even Cookie Monster from "Sesame Street" has expressed on social media that he is paying more for fewer cookies, a phenomenon known as "shrinkflation."
The Federal Trade Commission and the Justice Department will head the strike team, the White House announced.
The White House Competition Council is supposed to save consumers money and encourage more competition in the US economy, according to the Biden administration.
Biden Administration's Efforts to Tackle Junk Fees and Credit Card Restrictions
According to a report by the White House Council of Economic Advisers, the Biden administration's overall initiatives will remove $20 billion in yearly garbage fees. According to the research, customers pay garbage fees totaling around $90 billion annually for events like concerts, apartment leases, and car dealerships.
In the run-up to this year's presidential race, it doesn't seem like the endeavor has done anything to support Biden politically. According to a recent poll conducted by The Associated Press-NORC Center for Public Affairs Research, just 34% of American adults support Biden's economic leadership.
Sen. Tim Scott, a Republican from South Carolina, questioned the CFPB restriction on credit card late fees. He said that customers will eventually pay more because of increased interest rates and fewer credit options.
In the third quarter of 2023, Americans had credit card balances of over $1.05 trillion, a record that is expected to rise when the Federal Deposit Insurance Corp. releases the fourth-quarter figures the following month. The interest rate on such balances is currently the highest since the Federal Reserve began monitoring the data in the middle of the 1990s.
Additionally, an increasing number of Americans are defaulting on their credit card debt. For a number of quarters, there has been an increased trend in delinquency rates at the major credit card issuers, including American Express, JPMorgan Chase, Citigroup, Capital One, and Discover. Concerns have been raised by some researchers that Americans, especially lower-income households impacted by inflation, may be taking on excessive debt.
Part of the reason Capital One announced last month that it would acquire Discover Financial for $35 billion was the credit card industry's expansion. The two businesses, who happen to be the biggest credit card issuers, also have consumers who consistently have balances on their cards.
Legislators have already expressed their opinions on credit card fees. The CARD Act was approved by Congress in 2010 and prohibited credit card issuers from imposing exorbitant penalty fees. It also introduced more transparent disclosures and safeguards for consumers.
