White House Enlists States in Anti-Junk Fee Crusade

The President Joe Biden administration is taking its campaign against junk fees to the state level.

The White House is scheduled to hold a conference Wednesday (March 8) with state legislators to implore them to take action against the surprise fees consumers pay for a host of bills and services.

As part of the effort, the administration has also introduced a guide for states with suggestions on how to get rid of the fees, either through steps like legislation, enforcing existing laws, or putting limits on fees in the contracts they sign with vendors.

“While President Biden and federal agencies are doing what they can to crack down on junk fees, states too can play a critical role,” the guide stated.

Among the White House’s anti-fee efforts is last month’s proposal for a cap on what the administration said are excessive credit card late fees.

According to the Consumer Financial Protection Bureau (CFPB), the cap would lower the typical late fee from around $30 to $8, thereby giving consumers savings of up to $9 billion a year.

“Over a decade ago, Congress banned excessive credit card late fees, but companies have exploited a regulatory loophole that has allowed them to escape scrutiny for charging an otherwise illegal junk fee,” CFPB Director Rohit Chopra said in a February news release. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”

In addition, the proposal would cap late fees at 25% of the required minimum payment, an update to the current rule, which allows card companies to charge late fees that are 100% of the minimum payment the customer owes.

PYMNTS has written that this proposal could have negative, unintended consequences, such as “stifling consumers’ embrace of banks’ innovations designed to avoid late payments in the first place. Those innovations include digital reminders and grace periods that are designed to keep payments timely.”

While a cap on fees would immediately reduce the penalties paid by a subsegment of banks’ customers, “the ripple effects might be considerable,” that report added.

Estimates by the Federal Reserve show that late and other fees make up about 16% of profitability, while profits, in turn, help pay for the innovations that benefit the financial services ecosystem as a whole.

Those innovations, PYMNTS wrote, include things that keep consumers on track to improve their financial health, avoid late payments in the first place and improve their credit.