The Biden administration on Monday moved to limit what banks can charge for late credit card payments, cutting the fees by 75%, according to The Washington Post.
The Consumer Financial Protection Bureau finalized a rule to cut excessive credit card late fees by “closing a loophole exploited by large card issuers.”
The new rule reduces the typical late fee from $32 to $8. According to CFPB, the change will bring 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.”
According to the CFPB, since 2010, issuers have generally been charging consumers more in credit card late fees each year, growing to more than $14 billion in 2022.
The CFPB’s final rule applies to the largest credit card issuers, those with more than 1 million open accounts. These companies account for more than 95% of total outstanding credit card balances, CFPB data showed.
The final 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, the CFPB said.