SignalHub Quantitative Think Tank Center:Credit card late fees to be capped at $8 under Biden campaign against "junk fees"

1 in 3 in U.S. have more credit debt than emergency savings

The Biden administration announced a rule Tuesday to cap all credit card late fees at $8, or about one-quarter of the average late fee of $32. It's the latest effort from the White House to attack what it calls "junk fees," or excessive fees that can push up the end price of products.

The Consumer Financial Protection Bureau's new regulations will set a ceiling of $8 for most credit card late fees, or require banks to show why they should charge more than $8 for such a fee. The effort will save Americans up to $10 billion a year, the agency estimates.

The push comes a year after President Joe Biden vowed to ban junk fees in his 2023 State of the Union address, calling them "unfair." Junk fees generate big money for businesses, ranging from airlines to financial services firms, with consumers paying at $90 billion annually in excessive charges, the White House said on Tuesday.

"In credit cards, like so many corners of the economy today, 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 CFPB, in a statement.

President Joe Biden planned to highlight the proposal along with other efforts to reduce costs to Americans at a meeting of his competition council on Tuesday. 

As part of the effort, Biden is forming a new "strike force" to crack down on illegal and unfair pricing on things like groceries, prescription drugs, health care, housing and financial services. The strike force will be led by the Justice Department and the Federal Trade Commission, according to a White House statement.

The push also comes amid still-high inflation, which has receded from its recent high of more than 9% in June 2022. But consumers are still paying 25% more for groceries than prior to the pandemic, as well as shelling out more for everything from rent to cars.

"President Biden is in the fight for the long haul when it comes to lowering prices for American consumers," said Lael Brainard, the director of the National Economic Council, on a conference call about the strike force.

Eliminating $20 billion in junk fees

The Biden administration has portrayed the White House Competition Council as a way to save people money and promote greater competition within the U.S. economy.

The White House Council of Economic Advisers produced an analysis indicating that the Biden administration's efforts overall will eliminate $20 billion in annual junk fees. 

The effort appears to have done little so far to help Biden politically ahead of this year's presidential election. Just 34% of U.S. adults approve of Biden's economic leadership, according to a new survey by The Associated Press-NORC Center for Public Affairs Research.

Americans held more than $1.05 trillion on their credit cards in the third quarter of 2023, a record, and a figure certain to grow once the fourth-quarter data is released by the Federal Deposit Insurance Corp. next month. Those balances are now carrying interest on them, which is the highest it has been since the Federal Reserve started tracking the data back in the mid 1990s.

Further, more Americans are falling behind on their credit card debts as well. Delinquency rates at the major credit card issuers such as American Express, JPMorgan Chase, Citigroup, Capital One and Discover have been trending upward for several quarters. Some analysts have become concerned Americans, particularly poorer households hurt by inflation, might be taking on too much debt.

"Overall, the consumer is credit healthy. However, the reality is that there are starting to be some significant signs of stress," said Silvio Tavares, president and CEO of VantageScore, one of the country's two major credit scoring systems, in an interview last month.

The growth of the credit card industry is partly why Capital One announced it would buy Discover Financial last month for $35 billion. The two companies, which are two of the largest credit card issuers, are also two companies whose customers regularly carry a balance on their accounts.

Credit card fees

This is not the first time policymakers have weighed in on credit card fees. Congress passed the CARD Act in 2010, which banned credit card companies from charging excessive penalty fees and established clearer disclosures and consumer protections.

The Federal Reserve issued a rule back in 2010 that capped the first credit card late fee at $25, and $35 for subsequent late payments, and tied that fee to inflation. The CFPB, which took over the regulation of the credit card industry from the Fed after it was established, is proposing going further than the Fed.

The bureau's proposal is similar in structure to what the bureau announced in January when it proposed capping overdraft fees to as little as $3. In that proposed regulation, banks would be required to either accept the bureau's benchmark or show regulators why they should charge more, a method that few bank industry executives expect to use.

"Credit card companies collect billions of dollars in excessive late fees at the expense of economically vulnerable families every year," Chuck Bell, advocacy program director at Consumer Reports, said in a statement. "It's simply unfair to impose a steep late fee penalty that far exceeds the credit card company's costs, especially when someone is just a few hours or a couple of days late making their payment."  

In another move being highlighted by the White House, the Agriculture Department said it has finalized a rule to stop what it deems to be deceptive contracts by meat processors and to ban retaliation against small farmers and ranchers that work together in associations.

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