Biden Calls for Cap on Credit Card Late Fees

The Biden administration wants to cap what it calls excessive credit card late fees.

The White House announced the plan Wednesday (Feb. 1) as part of a larger strategy targeting fees for several consumer products, including internet service, airfare and hotel bookings.

According to the Consumer Finance Protection Bureau (CFPB), the cap would reduce the typical late fee from around $30 to $8, thus saving consumers 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 news release. “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.”

The CFPB proposal would also cap late fees at 25% of the required minimum payment, changing the current rule, which lets card companies charge late fees that are 100% of the minimum payment the customer owes.

The bureau has spent the last several months targeting “junk fees” across a number of industries, and has thus far had a busy 2023.

“The impact of possible fines, of new guidelines and rules, has the potential to reshape how a broad range of companies do business, and how they interact with their end customers,” PYMNTS wrote last month.

The CFPB’s proposed change to credit card late fees comes as consumers are increasingly relying on credit cards to cover expenses, as PYMNTS noted earlier this week. That’s perhaps not surprising, given that almost two-thirds of consumers live paycheck to paycheck.

However, earnings reports from the industry indicate that a large portion of these consumers may be digging themselves deeper and deeper into debt.

For example, American Express’ earnings report for the last quarter of 2022 showed customers charged 15% more than they did a year ago. The company’s loans-past-due and write-off rates also increased, while still remaining below pre-pandemic levels.

Wells Fargo saw new card accounts increase by 31% in 2022 and credit card point of sale (POS) sales grow by 17%. The bank’s card loans over 30 days late increased as well during the same timeframe, as did consumer net loan charge-offs.

“This implies that consumers are using their cards more yet are also increasingly having trouble paying these debts back,” PYMNTS wrote.

Also on the White House’s fee agenda, according to a Wednesday press briefing, is a call for Congress to crack down on excessive fees for online concert ticket and sporting event fees, and a ban on the fees airlines charge family members to sit with young children.