March 7th 2024.
President Joe Biden has taken decisive action to regulate credit card late fees, capping them at a maximum of $8 in order to eliminate unfair and unnecessary charges. This new rule, which was issued on March 5, is expected to save families over $10 billion per year by significantly reducing fees from an average of $32. The Consumer Financial Protection Bureau (CFPB) estimates that this regulation will apply to large credit card companies with over 1 million accounts, which represent 95% of the total outstanding credit card debt.
This proposal was first introduced in February 2023 and is part of the Biden administration's efforts to help American families who are struggling with the rising costs of living. During a meeting with his Competition Council, President Biden noted that credit card companies have been making five times more in late fees than they have in costs to recoup the late payments. This practice is a violation of federal law, as it prevents credit card companies from charging fees that exceed the cost of collecting payments. "They're padding their profit margins and charging hard-working Americans," President Biden stated.
In addition to saving families $10 billion in credit card late fees every year, the CFPB is also proposing a rule to address the issue of rising overdraft fees. This rule aims to close loopholes that previously allowed overdraft lending services to be exempt from the Truth in Lending Act of 1968. While banks will still be able to charge limited overdraft fees, they will not be allowed to exceed their losses under this regulation. The finalized amount for these fees is still being discussed, but the CFPB is considering limits of $3, $6, $7, or $14, plus an additional $0.50 per transaction.
According to the CFPB, over 45 million people are charged late fees on their credit cards each year, but they could save an average of $220 annually under this new regulation. Senator Elizabeth Warren praised the move on social media, stating, "This action by President Biden will save Americans $10 BILLION a year. These junk fees are designed to boost Wall Street profits at the expense of working people. @POTUS and @chopracfpb are saying ENOUGH. This is the government working for the people, not the big banks."
However, not everyone is happy with these changes, particularly banking industry executives. Rob Nichols, president and CEO of the American Bankers Association, has accused the CFPB of prioritizing politics over sound public policy. He also criticized the timing of the rule's release, just two days before President Biden's State of the Union address on March 7. "Today's flawed final rule will not only reduce competition and increase the cost of credit, but will also result in more late payments, higher debt, lower credit scores, and reduced credit access for those who need it most," Nichols stated.
Eliminating these "junk fees" for consumers has been a key part of President Biden's economic agenda. The Council of Economic Advisers estimates that the administration's actions targeting various industries, such as banking, ticketing, and airlines, will result in a reduction of more than $20 billion in junk fees annually. "The American people are tired of being played for suckers," President Biden declared. With these new regulations in place, the government is working for the people, not the big banks.
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