New federal rule limits most credit card payments to $8
Millions of Americans could soon see lower credit card bills after a federal rule limiting late fees to $8 a month was finalized Tuesday by the Consumer Financial Protection Bureau, which estimates the change will save households $10 billion a year.
Delinquencies have become a major source of profit for credit card issuers, generating more than $14 billion by 2022, according to agency data. A 2010 Federal Reserve-imposed rule was intended to cap costs but allowed for inflation adjustments – a commission card used to increase their fees far above the actual costs they incur when payments come in late , the agency said.
This allowed credit card companies to “harvest billions of dollars in junk fees from American consumers,” said Rohit Chopra, director of the agency. “The current rule ends the era of big credit card companies hiding behind the excuse of inflation as they raise fees for borrowers and improve their own bottom lines.”
The new restriction limits issuers to an $8 fee unless they can prove they need to charge more to cover their actual collection costs. The rule only applies to large issuers that have more than a million outstanding accounts, but the agency estimates the rule will cover 95 percent of outstanding credit card balances.
The rule will soon be published in the Federal Register and will go into effect 60 days later.
Banking industry groups strongly oppose the rule and are likely to file a lawsuit in an attempt to block it.
Ian Katz, managing director at research firm Capital Alpha Partners, predicted the lawsuit would be filed “in a sympathetic district where the industry is likely to delay implementing the rule while the case is heard.”
The Bank Policy Institute, a trade group, said the consumer agency’s justification for the rule does not meet the “reasoned analysis and evidentiary support” required by the Administrative Procedure Act, which governs the agency’s regulations.
“Given the rule’s many flaws and shortcomings, its fate will likely be decided in federal court,” said Greg Baer, CEO of the trade group. “All consumers who pay on time will now pay more, and low- and moderate-income borrowers who are at greater risk will lose some access to credit.”
Lindsey Johnson, the CEO of the Consumer Bankers Association, another trade group, pointed out a desk analysis which acknowledged that card issuers “could adjust other fees or interest rates to recoup any lost revenue,” as an indication that the rule could negatively impact cardholders.
She added: “By normalizing late credit card payments, the government is knowingly endangering the financial health of consumers.”
Consumer advocates applauded the change. The consumer agency “showed its math” in explaining how it calculated the $8 reimbursement limit, said Lauren Saunders, deputy director of the National Consumer Law Center. “This creates good, data-driven regulations.”
The final rule comes just over a year after the consumer agency circulated a draft version for public comment. The final version is fairly close to the earlier proposal.
President Biden is likely to highlight the new rule in his State of the Union address on Thursday. His administration has made a multi-agency crackdown on what it calls “junk fees” a signature effort.
Mr. Chopra’s office has zealously embraced that campaign. targeting fees that it deems excessive through a range of enforcement measures and proposals for new restrictions. In January, the agency began the formal process of adopting a new rule that would lower overdraft fees to $14 or less, down from the current standard of $35.