Business groups hit back at Biden administration's effort to cap credit card late fees

The Biden administration is seeking to impose a new limit on the typical credit card late fee, but the consumer credit and banking industry is warning the change could ultimately impact other consumers in the form of higher interest rates.

In a release Tuesday, the Consumer Financial Protection Bureau said a proposed $8 cap for a typical late fee would help save consumers a cumulative $10 billion.

“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. “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.

President Joe Biden has made targeting "junk" fees a major focus of his administration. Earlier Tuesday, he announced the formation of a task force targeting unfair and illegal pricing schemes.

But the credit card industry and other financial associations are already hitting out at the CFPB's proposed new rule, saying it could lead to unintended consequences for consumers.

In a statement, Rob Nichols, the president and CEO of the American Bankers Association, called the proposal "flawed," arguing it could actually result in more late payments and ultimately lower credit scores. It could also have a knock-on effect for card users who do pay what they owe on time, Nichols said.

"The Bureau’s misguided decision 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 those who pay on time," Nichols said.

The Consumer Bankers Association, another trade group, echoed