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The Consumer Financial Protection Bureau proposed a new rule on February 1 that would dramatically reduce the late fees banks can charge consumers who miss credit card payments. The banks, which were surprised by the severity of the proposal, are already gearing up for a fight. Under current regulations, credit card issuers, primarily banks, can charge cardholders up to $30 for an initial late payment and $41 for subsequent missed payments. The proposal would chop that down to a flat $8, unless a bank could show that its cost of collection is more than that $8. Additionally, the Bureau moved to end an automatic annual inflation adjustment for this exemption threshold.
“Many credit card issuers have made late fee penalties a core part of their profit model,” CFPB Director Rohit Chopra said in an announcement. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.” In 2020, late fees funneled $12 billion into banks’ coffers, the CFPB reports.
The proposed rule change comes as the CFPB and the Biden administration move to crack down on a variety of so-called “junk fees” including service charges attached to ticket prices, resort fees and undisclosed fees on phone bills. “In many cases the fees are mysterious and can leave an individual unsure of the purpose. With overdraft fees, a cup of coffee can go from $3 to $35,” a post on junk fees from the CFPB reads.
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