Biden Targets Excessive Credit Card Late Fees

President Biden today proposed new regulations aimed at reducing fees for late credit card payments while urging Congress to eliminate "unfair and costly junk fees" on items ranging from entertainment tickets to early-termination costs on mobile phone plans.

In conjunction with the latest meeting of Biden's Competition Council, the Consumer Financial Protection Bureau (CFBP) issued a proposed rule targeting excessive credit card late fees it claims cost American families about $12 billion a year.

The proposal is a part of the administration's broader campaign to protect consumers and limit market concentration. It marks the administration's latest salvo to curb excessive product and service fees. Such fees, it said, not only cost consumers "but can stifle competition by encouraging companies to use increasingly sophisticated tools to disguise the true price consumers face."

The Biden administration projects the rule will cut typical credit card late fees by about three-quarters, to $8 from an average near $30; currently, the CFPB says credit card companies charge as much as $41 for each missed payment. The proposed rule would cap monthly past-due penalties at 25% of the required minimum payment and eliminate a loophole that allows card companies to use inflation adjustments to raise late fees.

Lenders Push Back

However, the American Banking Association recently pushed back on the proposal because they claim the Biden administration has not consulted them on the regulations as is required by law.

In a Jan. 20 letter to the CFPB direct or Rohit Chopra, the consortium of lenders emphasized that before enacting the proposed rule, the agency must seek input from community banks and credit unions with assets less than $850 million in assets. The letter noted that 56% of the nation's 805 banks issuing credit cards fit that description, as do 85% of card-issuing credit unions.

"In light of this obligation, we were surprised to see that the CFPB is at the proposed rule stage," the letter stated.

In addition, the Bank Policy Institute asserts "deficient analyses" produced the proposal, which "would harm the very consumers the CFPB seeks to protect" by raising overall credit costs and reducing the availability of credit.

Other Fees in Biden's Sights

Previously, the CFPB banned surprise fees banks charge consumers for overdrawing their checking accounts while also eliminating surprise fees charged when consumer deposit someone else's check that ultimately bounces. The CFPB says those changes will reduce checking account fees by more than $1 billion annually. Even before then, the regulator says 15 of the 20 largest banks—including Bank of America (BAC) and Wells Fargo (WFC)—agreed to eliminate bounced check fees.

In addition, the Department of Transportation proposed a rule requiring airline and online booking services to show up front the full cost of airline tickets, including baggage and other fees. The Biden Administration said additional pressure from the DOT led numerous airlines to guarantee coverage of hotel and meal costs when they delay or cancel flights.

The Biden administration says those efforts don't go far enough, though. It wants Congress to approve a Junk Fee Prevention Act that:

• Addresses excessive online fees for concerts, sporting events and other entertainment tickets -- the administration said a review of 31 different sporting events across five ticket sellers' websites found those services charged fees averaging more than 20% of the ticket's face value.
• Bans airline seat fees for family members to sit with young children
• Eliminates "exorbitant" early termination fees for television, phone and internet service
• Bans "surprise" resort and destination fees -- the administration said more than one-third of hotel guests reported having paid such fees, which can total $50 or more per night.

These and similar fees, the administration claims, hide the true cost of products and services and limit the ability of consumers to compare costs.

"By reducing these fees and increasing transparency, we can provide relief to consumers and make our economy more competitive, particularly for new and growing businesses," a White House news released stated.

Part of a Broader Battle

Targeting excessive fees aligns with the Biden administration's broader focus on ending what it sees as unfair competition and market concentration within the U.S. economy.

Six months after taking office, Biden issued a 6,808-word executive order titled, "Promoting Competition in the American Economy," touting the critical role of "robust competition" and outlining the federal government's need correct its "inaction" in contributing to increased industry consolidation in the past several decades.

Several government agencies, perhaps most prominently the Federal Trade Commission under the leadership of chair Lina Khan, have led the Biden administration's charge to restore the competition and implement consumer protections it deems lacking.

The Department of Justice has requested an increase of more than $80 million for its antitrust division in the federal government's fiscal 2023 budget and is considering filing antitrust lawsuits against Apple and Google. Meanwhile, the FTC and the Justice Department have attempted to halt 22 mergers since Biden took office in January 2021, more than twice as many compared with first two years of the Trump administration and more than Obama administration's first two years.

In addition to its late-fee proposal, the Biden administration today also released a report recommending ways to level the playing field for mobile app developers while allowing consumers to have more control of their devices.