The Consumer Financial Protection Bureau has finalized its proposal
On Tuesday, the CFPB will release a final rule that is expected to save consumers $10 billion a year in credit card late fees.
"Late fees have gotten out of control," said CFPB Director Rohit Chopra on the White House call Monday with reporters to announce the final rule to reduce credit card late fees.
Chopra cited a loophole created by the Federal Reserve Board that has allowed credit card companies to raise late fees every year since 2010 in line with inflation. Credit card issuers over time have raised late fees to $32 on average for the first missed payment to $41 for subsequent late payments.
"We're going to end this automatic inflation adjustment and lower the provision to $8, a figure that reflects the average collection costs that large issuers incur as a result of late payments," Chopra said.
Lael Brainard, director of the National Economic Council and a former vice chair of the Federal Reserve, kicked off the call with reporters by announcing President Biden's creation of a new strike force under an executive order to root out unfair and illegal price hikes across many industries. The goal is to bring down costs on everything from hearing aids to asthma inhalers to air travel.
Biden is expected to announce in the State of the Union the efforts across several agencies including the CFPB, Federal Trade Commission and Department of Agriculture to address "anti-competitive, unfair, deceptive or fraudulent business practices."
"President Biden is fed up with corporate practices that unfairly raise costs for consumers and he's taking action," said Brainard, who also chairs the White House Competition Council. "Some corporations are tacking on extra fees, hiding costs and sometimes even breaking the law. The President is committed to lowering costs for hard working Americans who pay too much for groceries, banking, airfares, and basic utilities."
The effort to eliminate all sorts of fees and charges across many industries started in 2022 when Chopra first launched an initiative to get rid of
The CFPB expects more than 45 million consumers who are charged late fees every year will save an average of $220 a year.
The rule on late fees would amend existing rules implementing the Credit Card Accountability Responsibility and Disclosure Act of 2009 by requiring that credit card late fees be "reasonable and proportional" and in line with the costs incurred to handle late payments. The rule covers the largest credit card issuers, those with more than 1 million open accounts covering more than 95% of outstanding card balances.
"Almost all of the credit card giants have been hiking these fees every year using automatic inflation adjustments as an excuse, to avoid scrutiny that requires credit card issuers set late fees that are 'reasonable and proportional,'" Chopra said.
The CFPB made some changes to a credit card late fee
"We stand by the rule and we don't think that it is automatic that industry will challenge [the rule], but we will see," the official said.
Most of the $14 billion in annual credit card late fees are charged by "just a handful of mega banks engaged in the fee-churning business model," the official said.
Consumers paid
Under the new executive order, President Biden is creating what the White House called a "strike force" on unfair and illegal pricing that will be co-chaired by the Department of Justice and the Federal Trade Commission. The goal of the strike force is to strengthen interagency efforts to root out and stop illegal corporate behavior that has led to major hikes in prices across many industries.
The government is seeking to create a competitive environment so "the best products at the best prices succeed," Chopra said.
"We have seen the junk fee era really creep across so many sectors of the economy and across government, we're just trying to make sure that consumers and small businesses and workers are getting a fair shake wherever they go," Chopra said.
