Banking industry erupts over Biden admin's new rule on credit card late fees: 'Should not be allowed'
Credit card late fees will be capped at $8, reducing average late fee of $32
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Banking and credit card companies have started reacting to a new Biden administration rule that puts an $8 ceiling on credit card late fees.
"Today’s flawed final rule will not only reduce competition and increase the cost of credit, but will also result in more late payments, higher debt, lower credit scores and reduced credit access for those who need it most," American Bankers Association President and CEO Rob Nichols said in a press release provided to Fox News Digital.
"This rule should not be allowed to go into effect," he continued.
On Tuesday, The Consumer Financial Protection Bureau (CFPB) finalized a new rule to cap all credit card late fees at $8, which will apply to the country's largest credit card issuers, covering those with more than 1 million open accounts.
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The CFPB estimates the new regulation will save American families more than $10 billion in late fees annually by reducing the typical late fee of about $32. That amounts to an average saving of roughly $220 per year for the 45 million people who are charged late fees.
A new Biden administration rule has created an $8 ceiling for credit card late fees. (Getty Images)
The crackdown on late fees is part of a broader initiative by the Biden administration to limit so-called junk fees, which are sometimes hidden surcharges that consumers pay on everything from credit cards to loans to hotel rooms. Earlier this year, federal regulators rolled out a proposal to sharply cut overdraft fees charged by banks.
However, major financial institutions – and legislators – slammed the latest rule targeting credit card late fees, warning that it could ultimately hurt consumers by reducing competition, increasing the cost of credit, causing more people to pay late and reducing credit access for those who need it more.
"The Bureau’s misguided decision to cap credit card late fees at a level far below banks’ actual costs will force card issuers to reduce credit lines, tighten standards for new accounts and raise APRs for all consumers – even those who pay on time," Nichols said.
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"It comes as the CFPB continues to use misleading blog posts and irresponsible press statements to paint an inaccurate and distorted picture of today’s highly competitive credit card market," the CEO added, "which offers consumers a wide variety of card programs and features they value."
Ranking Senator Tim Scott, R-S.C., announced plans in a media statement Tuesday morning to fight the new rule and its implementation.
"While lowering the cap on late penalties may sound like a good talking point, in practice it will decrease the availability of credit card products for those who need it most, raise rates for many borrowers who carry a balance but pay on time, and increase the likelihood of late payments across the board. Lawful and contractually agreed upon payment incentives promote financial discipline and responsibility," Scott said in the press release.
"Ultimately, these commonsense practices protect consumers’ access to credit and enable a wider range of services," the senator expanded. "To continue delivering for those who need it most, I will be using the Congressional Review Act process to fight the implementation of this rule."
The Consumer Bankers Association (CBA), which represents the nation’s largest retail banks including Bank of America, Capital One, Citigroup, Wells Fargo and JPMorgan Chase, also criticized the new rule.
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"The rule’s policy goals are, at best, consumer redistribution, not consumer protection. Equally concerning is that this rule continues the CFPB’s deeply problematic practice of rushing to prioritize headlines at the expense of legal process. But this time they’re also endangering consumers’ long-term financial health," CBA President and CEO Lindsey Johnson said in a Tuesday statement.
"This final rule will benefit a small minority of frequent late-payers by offsetting the costs of their late payments by increasing costs amongst the 74 percent of cardholders that pay their bills on time," Johnson also said. "While the Administration is messaging this rule as a ‘win’ for consumers going into an election year, it’s anything but."
FOX Business’ Megan Henney contributed to this report.