Excessive fees are exacerbating consumer debt
Every time you miss your monthly credit card payment, you’re likely getting hit with a late fee from your issuer — which can be as high as $41. On top of that, your credit score takes a hit, your interest rate could climb on future purchases and your creditor may potentially end any promotional interest rate.
These late penalties hit households living paycheck-to-paycheck particularly hard — rather than being a “meaningful incentive to make on-time payments”, according to the CFPB.
President Biden said at a meeting of his competition council earlier this week that the current late fees are generating five times more money than credit card companies spend to collect late payments.
“They're padding their profit margins and charging hardworking Americans more,” he said. “It's a lot of money."
The CFPB says it will be reducing late fees down to $8 and curbing automatic inflation adjustments at large credit card issuers that have more than one million accounts and represent over 95% of total outstanding credit card debt.
It also notes these issuers may still be able to charge fees above the cap if they can prove the higher fee is necessary to cover their collection costs.
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Critics say there may be major consequences
While many consumer advocates are celebrating, not everyone’s pleased by the new regulation.
“It will decrease the availability of credit card products for those who need it most, raise rates for many borrowers who carry a balance but pay on time, and increase the likelihood of late payments across the board,” South Carolina Senator Tim Scott, a Republican, warned in a statement
The Chamber of Commerce also plans to file a lawsuit to try to prevent the regulation from going into effect.
“The Consumer Financial Protection Bureau has exceeded its authority," said Neil Bradley, the chamber's executive vice president and chief policy officer.
"The agency’s final credit card late fee rule punishes Americans who pay their credit card bills on time by forcing them to pay for those who don’t."
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