‘Charging hardworking Americans’: Biden's regulators just cut credit card late penalties from $32 to $8, calling them ‘junk fees’ — but critics say the rule will 'raise rates'. Who's right?

Although the CARD Act of 2009 called for limits on late fees and more consumer protection, an immunity provision granted by the Federal Reserve Board of Governors allowed card companies to escape enforcement, until now.

“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said CFPB Director Rohit Chopra in a news release.

“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.”

But some critics say the late-fee limit will hurt American consumers more than it will help. Here’s why.

Excessive fees are exacerbating consumer debt

Every time you miss your monthly credit card payment, you’re likely getting hit with a late fee from your issuer — which can be as high as $41. On top of that, your credit score takes a hit, your interest rate could climb on future purchases and your creditor may potentially end any promotional interest rate.

These late penalties hit households living paycheck-to-paycheck particularly hard — rather than being a “meaningful incentive to make on-time payments”, according to the CFPB.

President Biden said at a meeting of his competition council earlier this week that the current late fees are generating five times more money than credit card companies spend to collect late payments.

“They're padding their profit margins and charging hardworking Americans more,” he said. “It's a lot of money."

The CFPB says it will be reducing late fees down to $8 and curbing automatic inflation adjustments at large credit card issuers that have more than one million accounts and represent over 95% of total outstanding credit card debt.

It also notes these issuers may still be able to charge fees above the cap if they can prove the higher fee is necessary to cover their collection costs.