Rohit Chopra, director of the CFPB, testifies in the course of the Senate Banking, Housing and City Affairs Committee listening to titled “The Shopper Monetary Safety Bureau’s Semi-Annual Report back to Congress,” within the Dirksen Constructing on Nov. 30, 2023.
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The Consumer Financial Protection Bureau unveiled a brand new rule on Tuesday that it mentioned would cap the everyday late price that banks cost clients at $8 per incident.
By chopping late charges to $8 from a mean of round $32, greater than 45 million card customers would save a mean of $220 yearly, the CFPB mentioned in a launch.
The brand new rule, lengthy anticipated after an preliminary proposal was floated early final yr, comes after the company mentioned it reviewed market knowledge associated to the 2009 Card Act. Rules tied to that legislation granted card issuers the flexibility to cost ever-increasing quantities of late charges.
“For over a decade, bank card giants have been exploiting a loophole to reap billions of {dollars} in junk charges from American shoppers,” CFPB Director Rohit Chopra mentioned within the launch. “As we speak’s rule ends the period of massive bank card corporations hiding behind the excuse of inflation once they hike charges on debtors and increase their very own backside traces.”
The announcement is the most recent salvo in President Joe Biden’s battle in opposition to so-called junk charges.
The massive banks that concern bank cards have been elevating the price of late penalties since 2010, and the charges exceeded $14 billion in 2022, in line with the CFPB. The business income from clients with low credit score scores, who rack up a mean of $138 yearly in late charges per card, said Chopra.
The rule, which applies to card issuers with at the very least a million open accounts, additionally ends computerized inflation changes on late charges.
As a substitute, the company mentioned it could modify the price if wanted to cowl assortment prices, and that card issuers can cost increased charges in the event that they show they’re crucial. The rule does not straight have an effect on rates of interest, the CFPB mentioned.
An business group criticized the CFPB rule on Tuesday, saying that many card customers will see increased rates of interest and diminished credit score availability. The group additionally questioned the method by which the rule was issued. The CFPB says Congress granted it the authority to manage the Card Act.
“The rule’s coverage objectives are, at finest, shopper redistribution, not shopper safety,” Shopper Bankers Affiliation head Lindsey Johnson mentioned in an announcement. “Equally regarding is that this rule continues the CFPB’s deeply problematic observe of speeding to prioritize headlines on the expense of authorized course of.”
One other business group, the American Bankers Affiliation, mentioned it’s contemplating choices to push again in opposition to the CFPB’s guidelines.
In a launch, Republican Senator Tim Scott of South Carolina mentioned he would lean on the Congressional Review Act to battle implementation of the late price cap.
The rule goes into impact 60 days after its publication within the Federal Register, the CFPB mentioned.
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