President Joe Biden’s war on tacked-on charges that he calls “junk fees” rages on. Banks were the target this week, with proposed rules to rein in overdraft fees. Credit cards are also in the crosshairs with new curbs on late fees that could be finalized in the coming weeks.
Announced last February, the Consumer Financial Protection Bureau’s proposal would reduce late fees to $8 from the current rate of as much as $30 for the first infraction to $41 for subsequent late payments. This would be good news for consumers, who pay an estimated $12 billion in late fees a year, according to the agency. It would be less welcome for credit-card issuers, who would likely impose other costs to make up for revenue lost in late fees.
For example, banks could raise balance-transfer fees or foreign-transaction fees, or introduce the latter if they don’t currently charge them, says Matt Schulz, chief credit analyst at
LendingTree
and author of the forthcoming book “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life.”
They could also boost interest rates, which are already high at an average 21.5% for currently held cards, according to the Federal Reserve. Other possibilities include tightening credit standards for new cards and declining to waive late fees as a courtesy for first-time or infrequent offenders, Schulz says.
Credit-card issuers must give existing cardholders 45 days’ notice if they change the terms of their contract, he notes.
Among the issuers with the highest exposure to late fees as a percentage of revenue are those that issue private label cards for retailers, including
Synchrony Financial
and
Bread Financial,
according to analysts. Bread Financial declined to comment, citing a quiet period, and Synchrony Financial did not return a request for comment by press time.
Sarah Grano, a spokeswoman for the American Bankers Association, said in a statement, “The Bureau’s misguided proposal to cap credit card late fees at a level far below banks’ actual costs will force card issuers to reduce credit lines, tighten standards for new accounts and raise APRs for all consumers—even for the millions of Americans who pay on time.” APRs stands for annual percentage rates.
Industry observers expect the final rule to be issued before Biden delivers his State of the Union address on March 7. Legal challenges will likely delay its implementation, says John Hecht, senior analyst, consumer finance at Jefferies.
Write to Elizabeth O’Brien at [email protected]
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