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CFPB Finalizes Rule to Curtail Excessive Credit Card Late Fees

The Consumer Financial Protection Bureau (CFPB) recently concluded the finalization of a rule designed to address the issue of excessive late fees imposed by large credit card issuers. The rule introduces a noteworthy "threshold" of $8 for late fees and abolishes automatic inflation increases. This regulatory measure, aimed at promoting fairness and consumer savings, is scheduled to take effect in approximately 60 days after its publication in the Federal Register.


According to a press release from the CFPB, the rule specifies that large credit card issuers, defined as those with 1 million or more consumer accounts, must either cap late fees at a maximum of $8 or provide justifiable evidence for a higher fee based on their actual collection costs. This directive applies to around 30 to 35 of the approximately 4,000 financial institutions that issue credit cards.


The CFPB anticipates substantial consumer benefits from this rule change, estimating that American households will collectively save about $14 billion annually. The "typical fee" is anticipated to decrease from $32 to $8, resulting in savings of approximately $220 per person per year for the 45 million affected consumers. The new rule not only seeks to curb excessive late fees but also closes a loophole that has allowed large card issuers to exploit inflation as a pretext for fee hikes.


CFPB Director Rohit Chopra emphasized the significance of ending the era where credit card companies leveraged inflation excuses to boost their own profits. The rule aligns with the original intent of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), which aimed to ensure that fees imposed by card issuers corresponded with the actual costs incurred for infractions.


Despite the anticipated consumer benefits, the rule has faced opposition from some quarters. The American Bankers Association (ABA) has raised concerns, labeling the $8 fee as a "cap" that may reduce competition and negatively impact consumers. ABA President Rob Nichols expressed dissatisfaction, stating that the final rule could lead to increased late payments, higher debt, lower credit scores, and reduced credit access.


As this development unfolds, the rule is set to come into effect in the coming months, marking a significant step toward promoting transparency, fairness, and financial well-being for American consumers.

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