NEW YORK — The Biden administration on Tuesday announced a rule to cap all late fees on credit cards, the latest effort by the White House to end what it has called “junk fees,” and a measure that regulators will save Americans up to $10 billion a year.
The Consumer Financial Protection Bureau’s new regulations will set an $8 cap on most late credit card fees, or require banks to demonstrate why they should charge more than $8 for such a fee.
The rule would lower the average late credit card penalty from $32. The agency estimates that banks took in about $14 billion in credit card payments annually.
“In credit cards, as in so many parts of today’s economy, consumers are beset by junk fees and forced to navigate a market dominated by relatively few, powerful players who control the market,” said Rohit Chopra , director of the agency, in a position.
President Joe Biden planned to highlight the proposal, along with other efforts to lower costs for Americans, at a meeting of his Competition Council on Tuesday. Biden is forming a new “strike force” to crack down on illegal and unfair pricing on items like groceries, prescription drugs, health care, housing and financial services.
According to a White House statement, the strike force will be led by the Justice Department and the Federal Trade Commission.
The Biden administration has portrayed the White House Competition Council as a way to save people money and promote more competition within the U.S. economy.
The White House Council of Economic Advisers has produced an analysis showing that the Biden administration’s efforts will eliminate a total of $20 billion in annual junk fees. The analysis found that consumers pay about $90 billion a year in junk fees, including for concerts, apartment rentals and car dealerships.
It appears that efforts so far have done little to help Biden politically ahead of this year’s presidential election. Only 34% of American adults approve of Biden’s economic leadership, according to a new survey from The Associated Press-NORC Center for Public Affairs Research.
Americans had more than $1.05 trillion on their credit cards in the third quarter of 2023, a record and a figure that is sure to rise once fourth-quarter figures are released by the Federal Deposit Insurance Corp. next month. are released. Interest is now being charged on these balances, which is the highest since the Federal Reserve began keeping records in the mid-1990s.
Additionally, more and more Americans are falling behind on their credit card debt. Defaults at major credit card issuers, such as American Express, JPMorgan Chase, Citigroup, Capital One and Discover, have been rising for several quarters. Some analysts have grown concerned that Americans, especially poorer households hit by inflation, may be taking on too much debt.
“Overall, the consumer is credit healthy. The reality, however, is that some significant signs of stress are starting to appear,” Silvio Tavares, president and CEO of VantageScore, one of the country’s two major credit scoring systems, said in an interview last month.
The growth of the credit card industry is part of the reason Capital One announced last month it would buy Discover Financial for $35 billion. The two companies, which are two of the largest credit card issuers, are also two companies whose customers regularly carry balances on their accounts.
This isn’t the first time policymakers have addressed credit card fees. Congress passed the CARD Act in 2010, which banned credit card companies from charging excessive fines and established clearer disclosures and consumer protections.
The Federal Reserve issued a rule in 2010 that capped the initial penalty for late payments on a credit card at $25, and $35 for subsequent late payments, and tied that fee to inflation. The CFPB, which took over regulation of the credit card industry from the Fed after its creation, is proposing to go further than the Fed.
The agency’s proposal is similar in structure to what the agency announced in January when it proposed capping overdraft fees at just $3. That proposed rule would require banks to either accept the agency’s benchmark or to show regulators why they should charge more, a method that few banking executives expect to use.
Biden has made eliminating “junk fees” a cornerstone of his administration’s economic agenda ahead of the 2024 election. The fees banks charge their customers have been central to that campaign, and the White House has government regulators were instructed last year to do everything in their power to further curb this practice.
In another move highlighted by the White House, the Agriculture Department said it has finalized a rule to end what it considers deceptive contracts by meat processors and to prevent retaliation against small farmers and ranchers who participate in associations prohibit collaboration.
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Boek reported from Washington.