Biden Administration Targets Banks and Credit Cards

The retail banking industry went on high alert last week as President Joe Biden highlighted a new rule on credit card late fees. The administration has dialed up the rhetoric in an election year positioning credit card companies and financial institutions as predators on American consumers.

Critics believe that while policies limiting fees and late charges might seem like they favor consumers, the restrictions would actually negatively impact the economy and set limits on access to credit to the most economically challenged Americans.

The American Bankers Association stated in part,  "Today’s flawed rule will not only reduce competition and increase the cost of credit, but will also result in more late payments, higher debt, lower credit scores and reduced credit access for those who need it most."

The CFPB put into effect a rule that would cap all credit card late fees at $8. In contrast to the American Bankers Association, the CFPB said it will help American families save an estimated $10 billion per year affecting more than 40 million consumers.

President Biden covered the broader issue at his State of the Union address later in the week, including junk fees focused on hidden charges. Overdraft fees charged by banks are included in the administration’s grievances. Financial institutions lashed back, pointing out that this policy will limit credit lines and tighten standards since the late fees will not cover its costs.

CBA President and CEO Lindsey Johnson said,  "This final rule will benefit a small minority of frequent late-payers by offsetting the costs of their late payments by increasing costs amongst the 74 percent of cardholders that pay their bills on time."

Biden defended his decision in his fight against bank fees stating,  "We estimate banks are generated five times more in late fees than it costs to collect late payments. They're padding their profit margins."