On Tuesday, the White House announced it finalized a ruling first proposed last summer to cap late fees issued by the largest U.S. credit card issuers at $8, a move the Biden administration says will lead to annual consumer savings of $10 billion.

The Consumer Financial Protection Bureau said major credit card issuers have been exploiting a clause in legislation passed by Congress in 2009, the Credit Card Accountability Responsibility and Disclosure Act, which aimed to ban companies from charging excessive penalty fees. Those practices have driven the average cost of credit card late fees from $23 at the end of 2010 to $32 in 2022, accounting for $14 billion in annual revenues for the companies and representing more than 10% of the $130 billion charged to users every year in interest and fees, according to the bureau.

“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said Consumer Financial Protection Bureau director Rohit Chopra in a press statement. “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.”

The bureau said the fee cap will result in average savings of $220 per year for the 45 million consumers who are charged late fees.

The cap on late fees was part of a broader White House announcement that included the launch of the new Strike Force on Unfair and Illegal Pricing that Biden administration officials said is aiming to hold companies accountable “when they try to rip off Americans, including when they break the law while keeping prices high.”

The effort includes the Department of Justice, Federal Trade Commission and other agencies and will focus on areas where pricing issues are a concern including prescription drugs, health care, food and grocery, housing and financial services.

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In addition to the cap on credit card late fees, the financial protection bureau said the new rules will also eliminate the ability for credit card issuers to automatically assess inflation adjustments on late fees and require issuers to “show their math” when it comes to actual collection costs before subsequent late fee adjustments can be made.

Rising credit card debt

U.S. credit card debt breached the $1 trillion mark for the first time ever in the second quarter of 2023, but economists note the enormous sum is one driven by a variety of factors, including a growing number of credit card users across the country.

According to a Federal Reserve report published last month, consumer credit card debt ballooned by $50 billion in the last three months of 2023 and stood at $1.13 trillion to start the new year.

Delinquency rates on all types of consumer debt, with the exception of student loans, also rose in the final quarter of 2023, according to the Fed.

In a February press release, Federal Reserve Bank of New York economists wrote that “serious credit card delinquencies increased across all age groups, notably with younger borrowers surpassing pre-pandemic levels.” At the end of December, 3.1% of outstanding U.S. consumer debt was in some stage of delinquency. And approximately 8.5% of credit card balances and 7.7% of auto loans transitioned into delinquency, on an annualized basis, according to the Fed report.

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research adviser at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households.”