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Consumer Financial Protection Bureau

CFPB finalizes credit card late fee crackdown

The Consumer Financial Protection Bureau finalized a rule that will sharply curtail the late fees charged by credit card providers, assuming it survives court challenges.

The final version of the regulation will reduce the upper limit of what banks can charge for late fees to $8 — down from the average of about $32 — unless an institution can prove a higher fee is in line with their business costs. That core crackdown is unchanged from what was proposed by regulators in February 2023.

The CFPB said the final rule on late fees would save U.S. consumers as much as $10 billion a year.

And even though the policy targets the largest issuers of credit cards — firms with at least 1 million open accounts — the changes will cover “more than 95% of total outstanding credit card balances,” according to a CFPB release.

The consumer banking world is staunchly opposed to these changes, arguing customers don’t have a problem paying punitive fees when payment deadlines get missed. Retail bankers also argue the proposal could force some banks out of the $1 trillion credit card market.

The CFPB’s efforts here are part of a broader effort from the Biden administration this week “fighting corporate rip-offs.” National Economics Council Director Lael Brainard said on a press call Monday night that “the administration’s actions on banking junk fees alone will save Americans more than $20 billion every year.”

Keep an eye on the courts: The banking trade associations have already sued the CFPB and other financial regulators over regulations they oppose. That’s a shift in how the country’s top bank advocates usually deal with regulatory politics, but they’d argue the Biden administration isn’t quite following the law on process here.

Just last month, banking trades and other advocates sued federal bank regulators over long-running changes to the Community Reinvestment Act. We won’t be surprised if the CFPB’s forays into credit card reform here and elsewhere get a similar treatment in the weeks ahead.

— Brendan Pedersen

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