Biden administration finalizes rule cutting credit card late fees

President Joe Biden on Tuesday touted his administration's latest effort to slash credit card late fees in a move that's estimated to collectively save families $10 billion every year.

The Consumer Financial Protection Bureau finalized a rule Tuesday that will cut the typical credit card late fee to $8 from $32.

"That's the average of $220 in savings annually for more than 45 million Americans who typically have to pay late fees. A lot of money," Biden said while meeting with his Competition Council.

"We estimate banks are generated five times more in late fees than it costs to collect late payments. They're padding their profit margins," he said.

"Today's rule ends the era of big credit card companies hiding behind the excuse of inflation when they hike fees on borrowers and boost their own bottom lines," CFPB Director Rohit Chopra said in a statement.

The agency said its new rule closes a loophole in a federal law called the CARD Act that allowed major credit card issuers to charge customers growing fees when they were late on their payments. Over time, those late charges ballooned to as much as $41. The new rule would cap them at $8.

It would also prevent card issuers from automatically increasing fees based on inflation.

Industry groups representing big banks and credit card issuers have opposed the rule, arguing it could force them to raise interest rates they charge consumers.

"The rule's policy goals are, at best, consumer redistribution, not consumer protection," the Consumer Bankers Association, which represents banks and credit card issuers, said in a statement.

"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 statement. "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."

The CFPB's rule is expected to take effect in mid-May. It applies to issuers with more than 1 million open accounts.

Biden administration officials said "a handful of large banks" account for $14 billion in credit card late fees charged to American households every year.

Biden highlighted the rule along with a handful of other actions he's taking to try to lower costs and to sell his economic policies as benefitting Americans ahead of November's election.

He singled out a new report from the Council of Economic Advisers that the administration's actions on "junk fees" alone will save Americans more than $20 billion every year.

He's also announced the launch of a new "Strike Force" to crack down on unfair and illegal practices that keep prices high.

The "Strike Force" will target behavior that hikes prices on Americans through "anti-competitive, unfair, deceptive, or fraudulent business practices," and focus on areas such as "prescription drugs and health care, food and grocery, housing and financial services."

The Competition Council also announced efforts to go after poultry and meat processors by announcing a finalized new rule to protect farmers and ranchers and promote competitive agricultural markets.

One other area they're tackling is "bulk billing" by internet providers, specifically highlighting a proposed Federal Communications Commission rule that would ban the practice where landlords charge everyone living or working in a building for a particular internet, cable or satellite service, even if they don't want it or haven't opted in.

This decision to highlight these efforts to save Americans money comes two days before Biden delivers his State of the Union address, in which he's expected to lay out the work his administration has done to lower everyday costs for Americans.