The Consumer Financial Protection Bureau (CFPB) has announced a new rule aimed at reducing excessive credit card late fees, saving American families over $10 billion annually. This rule closes a loophole that has allowed large card issuers to exploit consumers, providing much-needed relief and holding credit card companies accountable.
New Rule to Reduce Excessive Credit Card Late Fees
The Consumer Financial Protection Bureau (CFPB) has announced a new rule aimed at reducing excessive credit card late fees. This rule will close a loophole that has allowed large card issuers to exploit consumers, resulting in billions of dollars in fees each year.
( Credit to: Consumerfinance )
According to the CFPB, American families currently pay over $14 billion in credit card late fees annually. The new rule is expected to save families more than $10 billion each year by reducing the typical late fee from $32 to $8. This means that the average consumer will save around $220 per year. This is great news for the more than 45 million people who are charged late fees.
CFPB Director Rohit Chopra expressed his concern about credit card companies taking advantage of consumers. He stated, “For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers. 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 Impact of the New Rule
To address this issue, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which banned credit card companies from charging excessive penalty fees and established clearer disclosures and consumer protections. However, a provision in the law allowed credit card companies to charge up to $25 for the first late payment and $35 for subsequent late payments, with both amounts adjusted for inflation each year.
Over time, these fees have continued to increase, with some large credit card companies making significant profits from late fees. The CFPB’s final rule lowers the threshold for late fees to $8 and eliminates the automatic annual inflation adjustment. This will hold credit card companies accountable and prevent them from charging excessive fees.
The rule applies to the largest credit card issuers, which account for more than 95% of total outstanding credit card balances. Smaller issuers tend to charge lower rates and fees to their borrowers. The CFPB’s analysis found that larger issuers often charge close to the maximum allowable late fee amount.
Under the new rule, credit card issuers will need to justify any fees charged above the $8 threshold by proving that they are necessary to cover their actual collection costs. This will ensure that consumers are not burdened with excessive fees.
Promoting Competition and Protecting Consumers
The CFPB’s efforts to address problems in the credit card market are part of a broader initiative to promote competition and protect consumers. The agency is working to help consumers find lower interest rates and has taken enforcement action against illegal conduct by credit card companies.
Overall, the CFPB’s new rule on credit card late fees is a significant step towards protecting consumers and reducing excessive fees. It will provide much-needed relief to American families and ensure that credit card companies are held accountable for their actions.
