On Tuesday, the Consumer Financial Protection Bureau (CFPB) unveiled a new regulation that puts a limit on late credit card fees at $8.
The CFPB released a statement explaining that this final rule aims to eliminate excessive late fees imposed by credit card firms, thereby addressing a loophole exploited by large card issuers.
With the new rule in place, American families are expected to save upwards of $10 billion a year in late fees – a significant reduction from the current $14 billion annually. The typical late fee will shrink from $32 to $8, leading to an average annual saving of $220 for over 45 million people who routinely incur late fees.
CPFB Director Rohit Chopra criticized credit card companies for exploiting a loophole to collect "billions of dollars in junk fees" from American customers over the past decade. He asserts that this new regulation marks an end to big credit card firms strategically increasing fees under the guise of inflation and consequently, enhancing their profits.
The freshly established rule is applicable to big credit card companies, i.e., those with more than one million accounts. These firms are responsible for over 95% of the total outstanding credit card debt, as per the CFPB.
Smaller issuers typically set lower rates and fees for their customers. Conversely, most large issuers impose the maximum permissible late fee amount. The CFPB accursed the credit card firms of basing their business model on penalties, fee harvesting, and deceptive tactics.
However, the rule does not affect the ability of credit card issuers to increase interest rates, lower credit lines, or employ various measures to discourage late payments from consumers.
