Rohit Chopra, director of the CFPB, testifies throughout the Senate Banking, Housing and City Affairs Committee listening to titled “The Client Monetary Safety Bureau’s Semi-Annual Report back to Congress,” in Dirksen Constructing on Thursday, November 30, 2023.
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The Client Monetary Safety Bureau unveiled a brand new rule on Tuesday that it mentioned would cap the everyday late charge that banks cost prospects at $8 per incident.
By reducing late charges to $8 from a mean of round $32, greater than 45 million card customers would save a mean of $220 yearly, the CFPB mentioned in a launch.
The brand new rule, lengthy anticipated after an preliminary proposal was floated early final yr, comes after the company mentioned it reviewed market knowledge associated to the 2009 Card Act. Laws tied to that legislation granted card issuers the flexibility to cost ever-increasing quantities of late charges.
“For over a decade, bank card giants have been exploiting a loophole to reap billions of {dollars} in junk charges from American shoppers,” CFPB Director Rohit Chopra mentioned within the launch. “In the present day’s rule ends the period of massive bank card corporations hiding behind the excuse of inflation once they hike charges on debtors and enhance their very own backside strains.”
The announcement is the most recent salvo in President Joe Biden’s conflict towards so-called junk charges.
The massive banks that challenge bank cards have been elevating the price of late penalties since 2010, and the charges exceeded $14 billion in 2022, in response to the CFPB. The trade income from prospects with low credit score scores, who rack up a mean of $138 yearly in late charges per card, mentioned Chopra.
The rule, which applies to card issuers with no less than a million open accounts, additionally ends automated inflation changes on late charges.
As a substitute, the company mentioned it might regulate the charge if wanted to cowl assortment prices, and that card issuers can cost greater charges in the event that they show they’re crucial. The rule does not immediately influence rates of interest, the CFPB mentioned.
An trade group criticized the CFPB rule on Tuesday, saying that many card customers will see greater rates of interest and lowered credit score availability. The group additionally questioned the method by which the rule was issued. The CFPB says that Congress granted it the authority to manage the Card Act.
“The rule’s coverage targets are, at greatest, client redistribution, not client safety,” Client Bankers Affiliation head Lindsey Johnson mentioned in a press release. “Equally regarding is that this rule continues the CFPB’s deeply problematic observe of dashing to prioritize headlines on the expense of authorized course of.”
One other trade group, the American Bankers Affiliation, mentioned it’s contemplating choices to push again towards the CFPB’s guidelines.
In a launch, Republican Senator Tim Scott of South Carolina mentioned he would lean on the Congressional Assessment Act to struggle implementation of the late charge cap.
The rule goes into impact 60 days after its publication within the Federal Register, the CFPB mentioned.