A federal judge in Fort Worth, Texas, blocked a new Biden administration rule that would prohibit credit card companies from charging customers late fees higher than $8. The judge granted a preliminary injunction to several business and banking organizations that alleged the new rule violated federal statutes. The rule, set to go into effect, would save consumers about $10 billion per year by cutting fees from an average of $32. The injunction means the rule cannot go into effect until a hearing is held for further adjudication.
The Consumer Financial Protection Bureau defended the rule, stating that the credit card lobby’s lawsuit was an attempt to derail a rule that would save families money. The delay in implementing the rule would result in consumers shouldering $800 million in late fees every month, benefiting the profit margins of credit card issuers. The US Chamber of Commerce, which led the lawsuit against the rule, has not responded to requests for comment. Consumer advocacy groups like Consumer Reports criticized the court’s decision, stating that credit card companies have been charging consumers excessive late fees for too long.
The new rule, proposed in 2023, is part of the Biden administration’s efforts to eliminate “junk fees” and ease financial burdens for Americans. It would apply to large credit card issuers with more than 1 million accounts, representing over 95% of total outstanding credit card debt. The administration aims to target credit card fees to help borrowers, especially millennials and those with lower incomes, who have struggled with credit card debt due to high inflation in recent years. The rule also aims to close a loophole that has allowed credit card companies to increase fees on late payments.
A national Consumer Reports survey found that one in five American adults had paid a credit card late fee in the previous 12 months, and 82% supported lowering the maximum late fee. The rule’s proponents argue that it is necessary to protect consumers from excessive fees that do not reflect the actual costs incurred by credit card companies. The Biden administration’s broader push to eliminate hidden or misleading charges to consumers aligns with efforts to promote transparency in financial transactions and protect consumers from unfair practices. Despite the court’s decision to block the rule temporarily, advocates are continuing to push for regulations that benefit consumers and address issues like excessive credit card fees.
