Consumers Score a Win with Credit Card Late Fee Cap
New federal rule would cap credit card late fees at $8
Banking interest groups are panicking at the announcement that the Consumer Financial Protection Bureau (CFPB) plans to implement a rule that would cap credit card late fees at $8.
The move is great news for consumers, who currently pay about $12 billion annually in late fees to credit card issuers. These fees may be incurred even if the payment is made just a few hours after a cutoff point.
The move comes as the CFPB is examining what it calls “junk fees” that are profit centers for banks and other financial institutions but serve little purpose in enhancing the customer experience or improving product offerings.
“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” said CFPB Director Rohit Chopra. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”
While current rules allow late fees to be as high as $41, the new rule, once implemented, would cap these fees at $8. That represents a savings to families of $9 billion a year.
Consumer groups said the move is a simple, clear, and positive win for consumers.
“Despite Congress’s ban on excessive late fees, the Federal Reserve’s loophole has allowed greedy credit card companies to collect exorbitant charges that were designed to profit from consumers living paycheck-to-paycheck,” said Liz Zelnick, Director of Economic Security and Corporate Power at Accountable.US. “The CFPB’s crackdown on these exploitative charges will redirect billions from the pockets of big banks to consumers' wallets and our economy. Today’s rule proposal proves that the bullying behavior of companies who abuse Americans for their own profit will not stand from the CFPB.”
The move has banking interests disappointed that they’ll now only be able to take in $3 billion a year in late fee revenue.
Of course, Americans routinely suffer at the hands of banks - especially the nation’s largest banks.
One recent analysis of consumer banking found that customers with savings products at the five largest banks (Bank of America, Citigroup, JPMorgan Chase, U.S. Bank, and Wells Fargo) could be losing more than $100 billion a year due to the low rates paid by these financial giants.
Additionally, a debt collector for Citibank and Discover was recently sued for filing thousands of “junk lawsuits” in order to intimidate customers into paying debts that weren’t owed or to pay higher settlement amounts.
While the big banks may be crying now, it’s clear they’ll be just fine in a market that should become more pleasant for consumers of credit products.
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