The Biden administration recently announced a new policy aimed at capping credit card late fees at $8. This move is designed to curb “excessive fees” and make debt management more manageable for consumers. The intent is to prevent banks from imposing extra burdens on those already fighting with credit card debt.
President Biden criticizes that banks often charge up to five times more for late payments than the associated costs. This measure challenges the banking sector’s practices, which he sees as exploiting its clients for overly inflated returns.
The Consumer Financial Protection Bureau reveals that banks earn nearly $14 billion each year from credit card late fees alone, with the average fee being around $32. This acts as a reminder for consumers to be wary of their payment due dates and amounts to avoid such fees.
Setting up reminders or automatic payments offered by banks could be one way to save cardholders from contributing to the profits that banks generate from late fees.
The proposed cap is seen as a significant relief for financially tight households. Chuck Bell, a financial policy advocate at Consumer Reports, suggests that this could potentially save households up to $220 annually.
However, Senior Industry Analyst Ted Rossman warns about possible adverse reactions such as higher interest rates or reduced credit access due to the loss of revenue from late fees. So, consumers need to stay informed of these industry changes.
Yet, both Rossman and Bell agree that infrequent late payers should not be heavily penalized. They propose more leniency from banks, especially during financial hardships. In their view, this approach could indeed foster long-term loyalty among customers and strengthen banking relationships.
