In an effort to alleviate financial pressures on everyday households, President Joe Biden’s administration is finalizing a rule to limit credit card late fees. Announced as one of several measures aiming to curb costs, the Consumer Financial Protection Bureau (CFPB) estimates the enactment of this new rule will save 45 million people who incur such penalties an average of $220 per year.
The proposed rule, which caps late fees at $8, is a steep decrease from current amounts of $30 and $41 for first and second missed payments within a six-month period, respectively. Businesses will need to demonstrate a necessity to charge a higher fee, to cover payment collection costs. If implemented, financial analysis predicts that credit card issuers could see a loss of up to $9 billion from their annual $12 billion in late fees.
In addition to this, the rule also proposes an end to the automatic adjustment of fees for inflation. Instead, the CFPB suggests monitoring market conditions and making necessary adjustments. The rule is planned to take effect 60 days after its official publication in the Federal Register.
However, backlash from trade groups representing large Wall Street banks is anticipated. Critics decried the rule almost immediately after its announcement last year, with the expectation that there could be legal actions to block its implementation.
The announcement also introduces other measures, including a rule intending to protect farmers and ranchers from deceptive practices by meat processors. Furthermore, the Justice Department and the Federal Trade Commission have announced an initiative to fight deceptive pricing practices.
These actions are just a part of Biden’s broader strategy to control inflationary pressures and lower daily costs for middle-class and working-class families. The administration will expand upon these measures during Thursday’s State of the Union speech.
Containing these fees is “necessary because some corporations are tacking on extra fees, hiding costs, and sometimes even breaking the law,” National Economic Council Director Lael Brainard said. As the president’s commitment to reduce costs for basic necessities like groceries, banking, airfare, and utilities shows, these initiatives may also play a crucial role in his 2024 reelection bid.
For further information, the full report on this new rule can be read here.