
Biden administration moves to cap credit card late fees at $8, saving Americans billions

The Biden administration has announced a plan to cap all credit card late fees at $8, or around one-quarter of the average late fee of $32. This is part of a broader effort to combat what it refers to as "junk fees," or excessive charges that can drive up the final cost of goods and services.
New Regulations Set a Ceiling for Late Fees
The Consumer Financial Protection Bureau (CFPB) is introducing new regulations that will establish a maximum late fee of $8 for most credit cards. Banks will have to justify any late fee exceeding this amount. The CFPB estimates that this initiative will save Americans up to $10 billion annually.
Eradicating Junk Fees and Unfair Practices
President Joe Biden had pledged to eliminate junk fees during his 2023 State of the Union address, condemning them as "unfair." The White House has stated that junk fees generate significant revenue for businesses, with consumers collectively paying roughly $90 billion each year in excessive charges.
President Biden is set to showcase this proposal, along with other measures aimed at reducing expenses for Americans, at a meeting of his competition council. As part of this endeavor, a new "strike force" will be established to address illegal and unfair pricing in areas such as groceries, prescription drugs, health care, housing, and financial services. This strike force will be spearheaded by the Justice Department and the Federal Trade Commission.
Addressing Consumer Costs Amid Inflation
These actions come in the midst of persistent high inflation, which, although down from its peak of over 9% in June 2022, continues to impact consumers. Despite the slight decrease, Americans are still grappling with a 25% increase in grocery prices compared to pre-pandemic levels, as well as elevated expenses for items ranging from rent to automobiles.
Anticipated Reduction of $20 Billion in Junk Fees
The White House has positioned the Competition Council as a means to save money for individuals and foster greater competition within the U.S. economy. An analysis by the White House Council of Economic Advisers suggests that the collective efforts of the Biden administration will lead to the elimination of approximately $20 billion in annual junk fees. However, these efforts have yet to significantly enhance Biden's standing ahead of the upcoming presidential election, with only 34% of U.S. adults approving of his economic leadership, according to a survey by The Associated Press-NORC Center for Public Affairs Research.
Magnitude of Credit Card Balances and Interest
As of the third quarter of 2023, Americans held over $1.05 trillion on their credit cards, a record figure that is expected to increase with the release of the fourth-quarter data by the Federal Deposit Insurance Corp. The balances on these cards are currently incurring interest at the highest rates seen since the Federal Reserve began tracking such data in the mid-1990s.
Moreover, a growing number of Americans are falling behind on their credit card payments, as delinquency rates at major credit card issuers like American Express, JPMorgan Chase, Citigroup, Capital One, and Discover have been on the rise for several quarters. Some analysts have expressed concerns that Americans, especially those from lower-income households affected by inflation, may be taking on excessive debt.
"While consumers overall maintain healthy credit, there are increasingly noticeable signs of financial strain," remarked Silvio Tavares, president and CEO of VantageScore, one of the country's two primary credit scoring systems.
Industry Response and Historical Perspective
The substantial growth of the credit card industry played a role in Capital One's recent announcement of its acquisition of Discover Financial for $35 billion. Both companies, among the largest credit card issuers, cater to clientele who often carry outstanding balances on their accounts.
It is worth noting that this is not the first instance of policymakers addressing credit card fees. In 2010, Congress passed the CARD Act, which prohibited credit card companies from imposing excessive penalty fees and established clearer disclosures and consumer protections. The Federal Reserve also implemented a rule in 2010 that capped the initial credit card late fee at $25, with subsequent late payments incurring a fee of $35, linked to inflation.
The CFPB, which assumed regulatory authority over the credit card industry from the Federal Reserve, is now proposing measures that go beyond the Fed's previous actions. The bureau's current proposal resembles the one put forth in January, which sought to cap overdraft fees at as little as $3. Under this proposal, banks would need to accept the bureau's benchmark or provide regulators with justification for charging higher fees – a course of action that few industry executives are anticipated to pursue.
Another move championed by the White House involves the Agriculture Department's finalization of a rule aimed at curbing deceptive contracts by meat processors and prohibiting retaliation against small farmers and ranchers collaborating in associations.
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