President Biden’s Crackdown on ‘Junk Fees’ Targets Banks and Credit Cards

President Joe Biden is intensifying his campaign against excessive and unnecessary charges that he has dubbed “junk fees.” This week, banks have come under scrutiny, as the administration proposes new regulations to rein in overdraft fees. In addition, credit cards are also in the crosshairs, with impending restrictions on late fees that are expected to be finalized in the near future.

Initially announced in February, the Consumer Financial Protection Bureau’s proposal aims to limit late fees to a maximum of $8, a significant reduction compared to current rates that can reach as high as $30 for the first offense and $41 for subsequent late payments. This is undoubtedly encouraging news for consumers, who collectively pay an estimated $12 billion in late fees annually. However, credit-card issuers may need to compensate for the lost revenue by implementing additional costs.

Moreover, another potential move could be an increase in interest rates, which are already alarmingly high with an average of 21.5% for existing credit cards, according to the Federal Reserve. Additionally, credit-card companies might tighten their credit standards for new card applicants and become less inclined to waive late fees as a courtesy for first-time or infrequent offenders.

President Biden’s efforts to tackle “junk fees” demonstrates his commitment to protecting consumers from excessive financial burdens imposed by banks and credit-card companies. While these proposed changes undoubtedly provide relief for consumers struggling with exorbitant fees, they also raise questions about how financial institutions will adapt to these new regulations and if they will find alternative ways to recoup lost revenue.

Overall, the battle against “junk fees” is an ongoing endeavor, with President Biden and the Consumer Financial Protection Bureau determined to create a fairer and more transparent financial system for all Americans.

Credit Card Issuers and Late Fees

Credit-card issuers are required to provide a 45-day notice to existing cardholders if they plan to change the terms of their contract, according to industry regulations.

Interestingly, analysts have observed that issuers who provide private label cards for retailers, such as Synchrony Financial and Bread Financial, have a higher exposure to late fees as a percentage of their revenue. However, Bread Financial declined to comment due to a quiet period, while Synchrony Financial did not respond to a request for comment at the time of writing.

Sarah Grano, a spokesperson for the American Bankers Association, expressed concerns about the proposal by the Bureau to cap credit card late fees at a level that is significantly lower than the actual costs incurred by banks. Grano noted that such a move would force card issuers to take various measures, including reducing credit lines, tightening standards for new accounts, and raising Annual Percentage Rates (APRs) for all consumers – even those who consistently pay on time.

While it is anticipated that the final rule will be issued before President Biden’s State of the Union address on March 7, industry experts believe that legal challenges may cause delays in its implementation. John Hecht, a senior analyst specializing in consumer finance at Jefferies, suggests that these challenges are likely to extend the timeline.