Rohit Chopra, director of the CFPB, testifies during the Senate Banking, Housing and Urban Affairs Committee hearing titled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress,” in the Dirksen Building on Nov. 30, 2023.
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The Consumer Financial Protection Bureau unveiled a new rule on Tuesday that it said would cap the typical late fee that banks charge customers at $8 per incident.
By cutting late fees to $8 from an average of around $32, more than 45 million card users would save an average of $220 annually, the CFPB said in a release.
The new rule, long expected after an initial proposal was floated early last year, comes after the agency said it reviewed market data related to the 2009 Card Act. Regulations tied to that law granted card issuers the ability to charge ever-increasing amounts of late fees.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” CFPB Director Rohit Chopra said in the release. “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.”
The announcement is the latest salvo in President Joe Biden’s war against so-called junk fees.
The big banks that issue credit cards have been raising the cost of late penalties since 2010, and the fees exceeded $14 billion in 2022, according to the CFPB. The industry profits from customers with low credit scores, who rack up an average of $138 annually in late fees per card, said Chopra.
The rule, which applies to card issuers with at least one million open accounts, also ends automatic inflation adjustments on late fees.
Instead, the agency said it would adjust the fee if needed to cover collection costs, and that card issuers can charge higher fees if they prove they are necessary. The rule doesn’t directly affect interest rates, the CFPB said.
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