The Consumer Financial Protection Bureau on Tuesday announced a new rule that caps the late credit card fee at $8.
In a statement, CFPB said it finalized the rule to cut excessive credit card late fees by closing a loophole exploited by large card issuers.
The new rule will lower fees that cost American families more than $14 billion a year. The CFPB estimates that American families will save more than $10 billion in late fees annually once the final rule goes into effect by reducing the typical fee from $32 to $8.
This will be an average savings of $220 per year for the more than 45 million people who are charged late fees.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said CFPB Director Rohit Chopra. “Today’s rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines.
The new rule applies to large credit card issuers – those with more than 1 million accounts. These companies represent more than 95% of total outstanding credit card debt, according to the CFPB.
The CFPB’s new rule applies to the large credit card issuers, those with more than 1 million open accounts. These companies account for more than 95% of total outstanding credit card balances.
According to CFPB, smaller issuers tend to charge lower rates and fees to their borrowers, while most of the large issuers charge close to the maximum allowable late fee amount. The regulator said that the credit card companies were building a business model on penalties, fee harvesting, and bait-and-switch tactics.
Meanwhile, the rule does not change the credit card issuer’s ability to raise interest rates, reduce credit lines, and take other actions to deter consumers from paying late.
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